The Collapse of EU Trade Relations: A Worst Case Scenario?

Abstract

This paper demonstrates the welfare implications of the differential disintegration of the EU. Using a structural gravity approach, our estimates suggest that the rest of the EU countries have much more to lose from the disintegration of the EU compared to a disorderly Brexit. At the same time, neighboring high income and middle income countries, such as Bosnia and Herzegovina and Norway, are expected to benefit from EU disintegration under some scenarios because they would increase their trade competitiveness relative to EU countries.

Keywords: Gravity model, trade policy, Brexit, EU

JEL Classification: F13, F14