Skip to main content

CEP discussion paper

The costs and benefits of leaving the EU: trade effects


This paper estimates the welfare effects of Brexit, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates, as in Costinot and Rodríguez-Clare (2014). We simulate a range of counterfactuals reflecting alternative options for EU-UK relations following Brexit. Welfare losses for the average UK household are 1:3% if the UK remains in the EU's Single Market like Norway (a “soft Brexit”). Losses rise to 2:7% if the UK trades with the EU under World Trade Organization rules (a “hard Brexit”). A reduced form approach that captures the dynamic effects of Brexit on productivity more than triples these losses and implies a decline in average income per capita of between 6:3% and 9:4%, partly via falls in foreign investment. These negative effects are widely shared across the entire income distribution and are unlikely to be offset from new trade deals.


Swati Dhingra, Hanwei Huang, Gianmarco I. P. Ottaviano, Joao Paulo Pessoa, Thomas Sampson and John Van Reenen

21 April 2017     Paper Number CEPDP1478

Download PDF - The costs and benefits of leaving the EU: trade effects

This CEP discussion paper is published under the centre's Trade programme, Growth programme.