Supply chain networks, trade and the Brexit deal: a general equilibrium analysis

Aida Garcia-Lazaro, Jakub Mistak, F. Gulcin Ozkan

Research output: Contribution to journalArticlepeer-review

Abstract

We develop a multi-country general equilibrium model featuring (i) migration flows across borders; (ii) explicit supply chain networks both across sectors and across countries; (iii) services sector with a significant role in both production and trade; and (iv) a separate banking sector. We then carefully calibrate this model to the UK's withdrawal from the EU, guided by the terms specified in the Trade and Cooperation Agreement (TCA), signed in December 2020. We find that supply networks aggravate the losses from trade disintegration significantly, raising the cost of Brexit, even in the absence of tariffs. We also quantify the effects of trade liberalisation between the UK and the third countries, revealing gains, yet, only at a fraction of the losses from the new frictions to the UK-EU trade. Importantly, losses from the UK's exit from the EU are not shared equally and fall disproportionately on low-skilled households.

Original languageEnglish
Article number104254
JournalJournal of Economic Dynamics and Control
Volume133
Early online date12 Oct 2021
DOIs
Publication statusPublished - 31 Dec 2021

Keywords

  • Brexit
  • Financial sector
  • Migration
  • Non-tariff barriers
  • Supply chains

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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