Estimating the Trade and Welfare Effects of Brexit: A Panel Data Structural Gravity Model

This paper proposes a new panel data structural gravity approach for estimating the trade and welfare effects of Brexit. Assuming different counterfactual post-Brexit scenarios, our main findings suggest that the UK's exports of goods to the EU are likely to decline within a range between 7.2 percent and 45.7 percent six years after Brexit has taken place. For the UK, the negative trade effects are only partially offset by an increase in domestic trade and trade with third countries, inducing a decline in the UK's real income of between 0.3 percent and 5.7 percent. The estimated welfare effects for the EU are not different from zero, but some members like Ireland are expected to also experience welfare losses.