Wie geht es mit dem Brexit weiter?

The UK’s 2016 EU referendum may account for great income losses in the UK. Gabriel Felbermayr et al. use a “new” quantitative trade model to assess various Brexit scenarios. The results broadly show that all EU member states lose, and the relative losses in the UK are about five times those of the average remaining EU country. These findings have important implications for the EU’s negotiation strategy. The outcome depends largely on the decisions about trade relations. Michael Hüther thinks that the UK is heading for an extremely hard Brexit and that it already shows. Therefore, the UK government should work out a consistent industrial policy and make up its mind about its preferences on its future economic relationship with its neighbours. In light of the currently very close and mutually welfare-enhancing business relations between the EU27 and the UK, one of the central tasks and challenges of the Brexit negotiations is undoubtedly the creation of a new supportive post-supranational legal framework governing these economic transactions in the future. Andreas Grimmel argues that the EU’s crises are largely the result of a certain mode of integration that is based on actors’ interests rather than on a comprehensive constitutional framework.     

The economic effects of the UK government's proposed Brexit deal

The focus of our analysis is on how the UK government's proposed Brexit deal is likely to affect the economy. First, we assess how trade, migration, foreign direct investment, productivity and contributions to the EU budget might change by reviewing current proposals against historical evidence. Second, we use the National Institute Global Econometric Model (NiGEM) to analyse the macroeconomic effects. Our assessment is that trade with the EU, especially in services, would be more costly after Brexit. This would be likely to have adverse effects on living standards in the UK. Our central estimate is that if the government's proposed Brexit deal is implemented, then GDP in the longer term will be around 3% lower per head than it would have been had the UK stayed in the EU. If the UK were to stay in a customs union with the EU, or if the Irish backstop position was to be invoked, there would still be a hit to GDP per capita of 2%. These estimates represent our considered view of the economic impact of the government's proposed Brexit deal, but they are themselves uncertain as there is no historical precedent of a country leaving a major trading block such as the EU.     

How Do US Economic Sanctions Affect EU's Trade with Target Countries?

We investigate the impact of US economic sanctions on EU's trade using a panel data approach expressed in a two‐level framework. Both multilateral and unilateral sanctions involving the US and the EU have a negative impact on EU trade (total, imports and exports). We argue that unilateral sanctions, if extensive in nature, would have a depressing impact on target countries’ trade, especially in the stage after sanctions have been imposed. Over time, both multilateral and unilateral sanctions lead to an increase in a target country's exports to the EU, lending support to the third‐country effect of sanctions.     

European Union Market Access Conditions and Africa's Extensive Margin of Food Trade

This paper examines the impact of two European Union (EU) market access regulations in the food sector presumed to simultaneously affect firms’ decisions to export food products to the EU. We analysed EU pesticide standards on African exports alongside a complementary non‐tariff measure in the form of a minimum entry price regulation, which aims to protect EU growers of certain fruits and vegetables against international competition. Analysis was based on Africa's exports of tomatoes, oranges, and lime and lemon to the EU between 2008 and 2013, using the gravity model of trade. Our results show that EU market access conditions constitute significant barrier to the formation of new trade relation between the EU and Africa. In addition, initiation of trade relationships is contingent not only on market access conditions but also on domestic market constraints in Africa. These results imply that negotiating preferential entry prices duties and the removal of domestic market restraints as well as strengthening domestic capacity to comply with EU standards to enhance continuous market access for the continent could stimulate food trade along the extensive margin.     

The European Union–West Africa Economic Partnership Agreement: Small impact and new questions

Despite recent modifications, the Economic Partnership Agreement (EPA) between the European Union (EU) and West African (WA) countries is still being criticized for its potential detrimental effects on WA countries. This paper provides updated evidence on the impact of the EPA on these countries. A dynamic multi-country, multi-sector computable general equilibrium trade model with modeling of the dual–dual economy and with a consistent tariff aggregator is used to simulate a series of new scenarios that include updated information on the agreement. We also go beyond estimating macro-level economic effects to analyze the impacts on poverty. The policy simulation results show that the implementation of the EPA between the EU and WA countries would have marginal but positive impacts on Burkina Faso and Côte d'Ivoire and negative impacts on Benin, Ghana, Nigeria, Senegal, and Togo. The impact on poverty indicators in Ghana and Nigeria would be marginal. From the perspective of WA countries, this study supports the view that recent EU concessions are not sufficient and that domestic fiscal reforms are needed in WA countries themselves.     

The great trade collapse and Indian firms

The collapse in global trade during the 2008–09 crisis has been widely studied using the developed nation(s) data. I use firm‐level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the USA and the EU, the effect being significantly higher in case of the USA. Results assert that 1% increase in the exposure towards the crisis‐affected zones (the USA and the EU combined) reduces an average Indian manufacturing firm's export earnings by 1.17%–1.36%; (b) trade in consumer non‐durables and durables are the two most affected sectors, impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008–09 crisis, only affects the high‐exposure industries. My results are robust to IV analysis and a variety of checks.     

Trade Liberalisation and Poverty Reduction in Vietnam

This paper investigates the impacts of trade liberalisation on poverty reduction in Vietnam during the period of economic reform. Using a combined approach dealing with four transmitting channels from trade to poverty, the major findings are summarised as follows. First, Vietnam's trade liberalisation has fostered economic growth, which has helped to raise per capita GDP and reduce poverty. Second, trade liberalisation has directly benefited the poor through creating pro‐poor employment and raising wages. Third, another impact of trade liberalisation on poverty is income and substitution effects associated with reduced domestic prices of importables and increased domestic prices of exportables such as coffee and rice. Fourth, trade liberalisation has indirectly benefited the poor because it raises government revenue, which enhances the government's ability to subsidise the poor. Finally, although the poverty rate in Vietnam has been reduced impressively, there is an increasing disparity between urban and rural areas and, among the latter, concern does exist regarding ethnic minorities.     

Bilateral Free Trade Agreements and Customs Unions: The Impact of the EU Republic of South Africa Free Trade Agreement on Botswana

The EU has indicated that after 2008 its trade relationships with developing countries will be dominated by the development of preferential trade agreements. Although not a consequence of the Cotonou Agreement, the free trade agreement between the EU and the Republic of South Africa (EU RSA FTA) was clearly one of the first fruits of this approach to trade relationships. However, there is no evidence that the design of the EU RSA FTA incorporated a comprehensive general equilibrium evaluation of the agreement for either the signatories or the other southern African nations. The analyses reported here indicate that while the EU RSA FTA may substantially benefit the signatories, there are appreciable negative impacts for other states, especially the Republic of South Africa's immediate neighbours. Moreover, the analyses indicate that the structural adjustments for African economies signalled by the FTA are substantial, which implies that there will be substantial economic costs associated with the FTA.     

Consequences of European Union Enlargement for Spain

This article analyses the effects that EU Eastern enlargement will have on the Spanish economy. As opposed to the widespread belief that the major impact on Spain will stem from the reduction of Community funds received, the impact on two real variables is also analysed here, namely trade and foreign direct investment, and evidence is offered of the restructuring of economic activity in the enlarged Europe and its effects on the Spanish economy. In addition, the competition for Spain of the new partners in the Community market is also examined. One of the most noteworthy results is that the competition of the new members of the European market is becoming stronger, as they have a commercial structure that is becoming more and more similar to Spain's and with a greater technological content. This phenomenon appears to be the outcome of the activity of the multinationals, which are re‐organising their activity and transferring part of their production to Central Europe to capitalise on the cost advantages of the new members and their more strategic geographical situation. Furthermore, evidence is put forward that, if the criteria for eligibility for the Structural and Cohesion Funds are not altered, Spain will be one of the countries in which the budgetary situation will deteriorate most in the post‐enlargement EU.     

The Enlarged European Union and Its Eastern Neighborhood

Abstract

This paper deals with the economic relations between Russia, Ukraine and the enlarged European Union. We start with some essential characteristics regarding the huge gaps in the size and trade structures of these three economic entities, before briefly outlining the development of their institutional relations. We discuss the impacts of EU enlargement on Russia and Ukraine, as well as the prospects for Russia—Ukraine relations. Given all the complexities of these relations, the mutual interdependence and the uncertainties concerning the future, we conclude that rather than devising grand new schemes, Russia, Ukraine and the EU should focus on practical steps that would facilitate closer cooperation in areas such as the development of border regions, the implementation of a free trade area and the support of economic reforms. Regarding Ukraine, whose official aspirations of EU membership seem highly unrealistic at least in the medium term and whose already high economic dependency on Russia is becoming even more pronounced, the policy challenges will be formidable. Whether Ukraine will succeed in a fine-tuned balancing act to establish closer relations with both the enlarged EU and Russia simultaneously, remains to be seen. Concerning economics, Ukraine's already intense eastward integration may even deependespite Ukraine possibly getting more hearing in the EU at the insistence of some new member states.     

Brexit and Trade: Between Facts and Irrelevance

This paper examines four claims made by Brexit supporters regarding the United Kingdom’s post-exit arrangement on trade with the EU. It reviews the nature and importance of UK-EU trade links and the possible impact on the UK of leaving the EU customs union. It argues that all four of the claims are based on incongruous arguments which are either logically inconsistent or ignore the extent of the commitment required by trade agreements that tackle regulatory barriers, not just tariffs and border restrictions. We demonstrate that the attractiveness of the UK market will progressively decline as the UK enters into additional bilateral agreements. We conclude by analysing the implications for the UK of “taking back control” of its trade policy.     

A computable general equilibrium analysis of Brexit: Barriers to trade and immigration restrictions

This paper estimates the economic effects of different types of restrictions on trade and immigration in the United Kingdom after Brexit. Regarding trade restrictions, we focus on UK–EU increases in tariffs and non-tariff barriers. We also analyse the removal of all tariffs in the UK to all its trading partners. Concerning immigration, we run a 5-year cumulative annual reduction in net migrants by 87,000 workers following OECD estimations, which looks realistic even if there is a hard Brexit. The study is conducted using a computable general equilibrium (CGE) model, which allows us to estimate the impact on GDP, welfare, wages and capital remuneration, together with the evolution of aggregate and sectoral output, exports and imports. We obtain a more sizeable negative impact on the UK than other previous influential studies. Trade restrictions would generate welfare reductions between −0.38% and −1.94% for the UK, while they would be between −0.03% and −0.14% in the EU. This is because the EU is a crucial trade partner for the UK, which cannot be easily substituted through trade with other regions in the world. We simulate the impact of both reductions in net inflows and in the stock of EU migrants, accumulated through 5 years. Migration is compatible with wage increases but puts downward pressure on GDPpc. However, migration restrictions would not compensate the overall GDPpc contractions arising from a hard Brexit.     

Transpacific Trade Imbalances: Causes and Cures

This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving‐investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.     

Which manufacturing industries and sectors are most vulnerable to Brexit?

When the UK leaves the EU, trade arrangements between the UK and EU will change. Most of the options for future UK‐EU relationships currently under discussion imply increased trade barriers, which will reduce trade and also have effects on output and prices. In this paper, we use a multi‐market partial equilibrium model to analyse the vulnerability of 122 manufacturing industries to Brexit. In all five Brexit scenarios we model, there is an overall reduction in UK manufacturing output. Output grows in some industries but at the expense of higher consumer and intermediate goods prices. High tech and medium–high tech sectors are more at risk of a decline in domestic production than lower tech sectors. In most areas of the country, demand for high‐skilled workers falls more than for medium and low‐skilled workers.     

Trade Diversion as Firm Adjustment to Trade Policy: Evidence from EU Anti‐dumping Duties on Vietnamese Footwear

This paper evaluates the impact of the 2006 European Union anti‐dumping (AD) action on Vietnamese footwear in three markets: imports to the EU, footwear producers in Vietnam, and the trade diversionary adjustment of Vietnamese firms in the US market. We find that the AD action reduced Vietnamese imports to the EU by as much as 65 per cent. Given that the EU makes up almost two‐thirds of Vietnam's footwear exports and footwear is among the top four export industries for Vietnam, this reduction is economically significant. Consistent with predictions of our model, we find evidence of trade diversion by Vietnamese producers from the EU to the US market. Our difference‐in‐difference estimates of the AD actions on the value of Vietnamese footwear imports to the United States ranged from 69 to 71 per cent over the period 2004–07 and 69 to 72 per cent in terms of quantity. These results highlight the spillover effects of trade policy in third markets when firms adjust to trade barriers. Our results are robust to triple‐difference specifications where we adjust for trend differences and a series of placebo specifications.     

Impact of EU agricultural policy on developing countries: A Uganda case study

Despite substantial reforms, the European Union (EU)'s Common Agricultural Policy (CAP) is still criticised for its detrimental effects on developing countries. This paper provides updated evidence on the impact of the CAP on one developing country, Uganda. It goes beyond estimating macrolevel economic effects by analysing the impacts on poverty. The policy simulation results show that eliminating EU agricultural support would have marginal but nonetheless positive impacts on the Ugandan economy and its poverty indicators. From the perspective of the EU's commitment to policy coherence for development, this supports the view that further reducing EU agricultural support would be positive for development.     

Trade Effects of the European Union's Service Directive: Contrasting ex ante Estimates with Empirical Evidence

One of the top priorities to improve the European Union's growth performance is the creation of a single market for services. The directive on services adopted by the Parliament and the Council by the end of 2006 aims at removing barriers to the free movement of service providers on the internal market. Previous studies quantified ex ante sizable effects of implementing the directive in its original form. This paper is a first attempt to evaluate ex post the trade effects induced by a directive – which excludes the country‐of‐origin principle – by performing a difference‐in‐difference‐(in‐differences) estimator on a sample of EU‐ and non‐EU countries in the period 2004 to 10. We account for non‐tariff trade barriers and the endogeneity of regional trade agreements and find that the service directive adds to a reallocation of business services trade within the EU. Accounting for the trade effect of past deregulations, the EU directive fosters a deeper integration of the new member states into the European service value‐added‐chain and promotes business service exports from third countries towards the EU significantly more than trade of country pairs in the control group. The reorientation of the EU‐15 towards the new members is in turn associated with less intense intra‐EU‐10 businesses, while business trade between EU‐15 members is not significantly affected.     

A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path‐dependency in Integration

This paper uses a gravity model to forecast the potential impact on trade balances and trade patterns of the 2004 EU enlargement. The results suggest that gross trade creation for the accession economies is about 25 per cent of their 2003 trade. Although membership of the EU creates trade it also results in trade diversion; that is, a declining share of accession country exports and imports with non‐EU15 countries. Overall, the trade balances of the accession countries suffer larger trade deficits after accession due to import growth surpassing export growth. The extent of increase in the trade deficit due to accession is inversely related to the level of integration and income of the new members. Hence integration is path‐dependent and the EU should take this into account when preparing for further enlargements to the Balkans and Southeast Europe.     

Firm R&D,Processing Trade and Input Trade Liberalisation: Evidence from Chinese Firms

This paper examines the impact of input trade liberalisation on firm R&D activity by taking China's accession to the WTO as a quasi‐natural experiment. Different from ordinary imports, processing imports in China enjoy zero tariffs and are not affected by input trade liberalisation due to the WTO accession. The paper uses disaggregated firm‐level production data and transaction‐level trade data to perform difference‐in‐difference analysis by taking processing import firms as a control group. An intensive empirical search shows that after China's accession to the WTO, input trade liberalisation fostered firm R&D significantly. The findings are robust to different measures and various empirical specifications.     

Brexit und die Zukunft Europas – eine spieltheoretische Einordnung

After the Brexit referendum’s leave outcome last summer, the new relationship between the UK and the EU has to be shaped institutionally. For the two bargaining parties the question now is which negotiation strategy to take. In order to choose the optimal strategy, the players have to factor in their time preferences. A game theoretical approach yields that the EU — no matter what is economically feasible in the short run — has to play a tough negotiation strategy if they care about the long run. This result is not a question of punishment but of pure economic rationale.