Economic Impacts of Brexit on the UK and the EU — An Empirical Analysis Based on the GTAP Model

• Main Authors: Ling-Hao Yu, 余凌昊
• Other Authors: 林建甫
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/b57v9q

碩士 === 國立臺灣大學 === 經濟學研究所 === 105 === The United Kingdom has started the formal process of Brexit – the departure of the UK from the European Union. Brexit will have great impacts on the trade between the UK and the EU (the EU refers to the remaining 27 EU member states hereafter), the magnitude of which will depend on the possible new trade agreement between them, especially on whether the UK would remain the current free trade relation with the EU market. The UK will certainly seek new trade agreements, such as FTAs (Free Trade Agreement), with other countries to make up the loss due to Brexit. On the other hand, the influence of the EU on the trade policy of Turkey and the EFTA (European Free Trade Association, comprised of Iceland, Liechtenstein, Norway and Switzerland) may increase the UK’s loss from Brexit. This paper examines the possible economic impacts on the UK and the EU from Brexit, especially from the loss of the UK-EU free trade, and how these impacts will interact with the UK’s new FTAs with her other major trading partners and the influence of the EU on Turkey and the EFTA. The empirical analysis is conducted with the GTAP (Global Trade Analysis Project) model which is based on the CGE Model (Computable General Equilibrium Model). The empirical results show that the GDP loss of the UK from Brexit is large and substantial while that of the EU is relatively small. In the basic scenarios, the GDP losses of the UK are around 1.29%~2.96%, and those of the EU are around 0.11%~0.26%, only 8.8%~8.9% of those of the UK. The possible FTAs between the UK and her other major trading partners will only make up 31.8%~73.4%, not the total, of the losses due to Brexit depending on the scope of the FTAs. On the contrary, it is quite easy for the EU to make up her total GDP losses from Brexit by new FTAs with her other major trading partners. The rate of return of the capital in the UK drops substantially in the short run after Brexit, and this will result in capital flight out of the UK in the long run, which will make the UK’s economy even worse. The UK’s new FTAs will dampen the problem of the capital flight. It will not affect the major conclusion from the basic scenarios if the shipping technology between the UK and other countries improves by 10%. Although the GDP losses in the basic scenarios are quite sensitive to the Arminton elasticity of substitution assumed in the GTAP model, it is still not enough for the UK to make up her total GDP losses from Brexit by her new FTAs even if the Arminton elasticity of substitution increases by 50%. The ratio of the marginal losses between the EU and the UK from the termination of the free trade between the EU and the UK is as low as 7.9%~12.3% in all scenarios as well as the robust tests, which renders the UK an absolute unfavorable position in the negotiation for the UK-EU free trade after Brexit. This paper suggests that the UK government compromise on other non-core issues to secure free trade with the EU to dampen the economic shock from Brexit.