A Computable General Equilibrium Analysis of Brexit: Barriers to Trade and Immigration Restrictions

This paper estimates the economic effects of different types of restrictions on trade and immigration in the United Kingdom after Brexit. Regarding trade restrictions, we focus on UK-EU increases of tariffs and Non-tariff barriers. We also analyse the removal of all tariffs in the UK to all its trading partners. Concerning immigration, we run a 5-year cumulative annual reduction in net migrants by 87.000 workers following OECD estimations. The study is conducted using a Computable General Equilibrium (CGE) Model, which allows us to estimate the impact on GDP, welfare, wages and capital remuneration, together with the evolution of aggregate and sectoral output, exports and imports. We obtain a more sizeable negative impact on the UK than other previous influential studies. Trade restrictions would generate welfare reductions between -0.38% and -1.94% for the UK, while they would be between -0.03% and -0.14% in the EU. This is because the EU is a crucial trade partner for the UK, which cannot be easily substituted through trade with other regions in the world. Restrictions to migrants would bring additional contractions in the range between -0.55% and -0.34% for welfare, depending on whether they affect skilled or unskilled workers, respectively.