Ireland and Brexit: modelling the impact of deal and no-deal scenarios

Abstract

This Article attempts to quantify the macroeconomic impact of Brexit on the Irish economy. Given both the political and economic uncertainty, we consider a range of alternative scenarios. We focus on the most well understood channels through which Brexit will affect Ireland, namely though lower trade, incorporating the impact of tariff and non-tariff measures, and the potentially positive impact of FDI diversion to Ireland. Our approach, and the main contribution of this paper, is to build up estimates of each of these channels from a range of recent micro-economic studies, so our estimates are anchored in the empirical literature. We then use these micro-estimates to calibrate macro scenarios; specifically we generate alternative paths for the UK and international economy using the NiGEM global model and assess the impact on Ireland using the COSMO model. Overall, in each scenario, the level of Irish output is permanently below where it otherwise would have been were the UK to decide to remain in the EU.