This paper outlines different approaches with the aim of analysing the robustness of outcomes of the Brexit in varying model assumptions. The paper first is concerned with the methodology and gives a brief overview of the possible Brexit scenarios and summarizes the results and the appropriate robustness checks estimated by Dhingra et al. (2017). Section 5 begins by laying out theoretical approaches of the research and discusses how the results change as the models extend by GVC and network effects.
Over the past century, there has been a dramatic increase in economic integration. Policy makers continued signing trade agreements after decades of war and political isolation. In 2016, the British decided to leave the EU and initiated a turnaround in political framework. Recent developments in Europe signal that the EU could be under pressure if the consequences of leaving the EU are insignificant. Therefore, these developments have heightened the need for scientific studies on trade integration and trade disperse. The individual per capita benefits of trade liberalisation have been studied by many researchers. There is a growing body of literature that recognises new quantitative trade models and fill them with the latest input output data.
Table of Contents
2 Introduction
3 Estimations of Dhingra et al. (2017)
3.1 Empirical Method
3.1.1 Model Assumptions
3.1.2 Gravity Equation
4 Scenarios of Leaving the EU
4.1 Summary of the results
4.1.1 Robustness Checks
4.2 Input-Output Data
5 Critical Assessment
5.1 Baseline Model
5.1.1 Melitz Model Extension of Jafari et al. (2020)
5.1.2 Aggregation Bias
5.2 Global Value Chains
5.2.1 Network effects
5.2.2 Results of Cappariello et al. (2020)
6 Conclusion and Outlook
Objectives and Core Topics
The primary objective of this paper is to examine the economic welfare effects resulting from the UK's withdrawal from the European Union, specifically by reviewing and synthesizing quantitative trade model estimations provided by Dhingra et al. (2017). The paper evaluates how different Brexit scenarios, ranging from 'Soft' to 'Hard' Brexit, influence welfare through trade costs, intermediate input changes, and global value chain dynamics.
- General equilibrium analysis of Brexit welfare impacts
- Comparison of 'Soft' vs. 'Hard' Brexit scenarios
- Role of Global Value Chains (GVC) and trade barriers
- Robustness analysis of quantitative model assumptions
- Evaluation of aggregation bias in international trade data
Excerpt from the Book
3.1.1 Model Assumptions
The baseline trade model consists of four assumptions additional to the following restrictions on a macro perspective: (i) trade is balanced, (ii) aggregate profits are a constant share of aggregate revenues, (iii) the import demand system exhibits CES (Dhingra et al., 2017).
First, the authors assume that the representative household underlies a Dixit-Stiglitz model explained by a CES utility function (Dhingra et al. 2017). Since the elasticity of substitution σ>1 the function exhibits convex monotonic preferences (Ottaviano, 2014). Second, the model simulates a one factor economy where total expenditures Ej equal the sum of labour income. Therefore, trade must be balanced since the aggregate budget constraint is binding (Dhingra et al. 2017). Furthermore, balanced trade implies the same level of overall expenditures, income wjLj, and trade flows (Dhingra et al., 2017).
The two missing assumptions are as follows: linear cost functions and perfect competition (Dhingra et al., 2017).
So far, we know that a household receives utility from consumption and that its expenditures come from labour income. The model estimates welfare in terms of real consumption given by the equation below.
Summary of Chapters
Introduction: Provides the context of rising economic integration and the British decision to leave the EU, outlining the paper's focus on reviewing quantitative welfare models.
Estimations of Dhingra et al. (2017): Summarizes the empirical methodology and gravity model framework used by Dhingra et al. to quantify Brexit-related welfare losses.
Scenarios of Leaving the EU: Details the differences between 'Soft' (Norway Model) and 'Hard' (WTO conditions) Brexit scenarios, including welfare loss estimations and robustness checks.
Critical Assessment: Critically analyzes the baseline models, incorporating extensions like the Melitz model, addressing aggregation bias, and discussing the impact of Global Value Chains.
Conclusion and Outlook: Synthesizes the main findings, noting that despite various limitations, the consensus points to a negative welfare impact on the UK.
Keywords
Brexit, Trade Policy, General Equilibrium Model, Welfare Effects, Soft Brexit, Hard Brexit, Global Value Chains, Trade Integration, Gravity Equation, Non-Tariff Barriers, Aggregation Bias, Input-Output Data, Economic Integration, Trade Elasticity, Labour Market.
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on evaluating the economic consequences of the Brexit, specifically the welfare losses for the UK based on quantitative trade models.
What are the main research themes?
The core themes include trade theory, the quantification of Brexit scenarios, the role of Global Value Chains, and the methodological robustness of economic models.
What is the central research question?
The central question is how different Brexit scenarios, such as the Soft vs. Hard Brexit, affect the economic welfare of the UK when measured through trade integration and real consumption per capita.
Which methodology is applied?
The paper utilizes a meta-analytical approach, comparing and critically reviewing Computable General Equilibrium (CGE) models, specifically the Eaton-Kortum and Armington-based frameworks.
What does the main body cover?
It covers empirical methodology, specific Brexit scenarios, robustness checks, and a critical analysis of model limitations including GVCs and aggregation bias.
Which keywords best characterize this research?
Key terms include Brexit, welfare effects, Global Value Chains, trade barriers, and general equilibrium modeling.
Why does the paper include a comparison of the Soft and Hard Brexit?
This comparison is essential to demonstrate the range of potential welfare outcomes, where Hard Brexit typically results in more significant income and welfare losses due to higher trade barriers.
What significance do Global Value Chains have in the analysis?
GVCs are highlighted as a crucial factor because their disruption, particularly in a Hard Brexit, increases costs for industries that rely on integrated production networks.
- Quote paper
- Pascal Hlavka (Author), 2021, Costs and Benefits of Leaving the EU. Possible Brexit Scenarios and Results, Munich, GRIN Verlag, https://www.grin.com/document/1154516
