An Estimation of the Effects of Brexit on Trade and Migration

Abstract

This paper uses a gravity model approach to estimate the effects of Brexit in two dimensions: trade in goods and migration.

We simulate two scenarios:

1) no agreement with reversión to WTO rules and no special treatment for migrants;

2) signature of a bilateral free trade agreement (FTA).

According to our results, Brexit may have large negative effects on trade and migration flows between the EU and the UK. In the WTO scenario, trade flows are predicted to drop by 30% and migration by close to 25%. If the UK and the EU sign an FTA-like agreement (which does not include free mobility of labour), the negative effects on trade are lessened although there is no significant difference in terms of migration with respect to the WTO scenario.

Keywords: international trade, migration, Brexit, gravity models, United Kingdom, European Union

JEL Classification: F13, F14, F17, F22