Estimation of Brexit Economic Effect on Intra-European Trade in the GTAP CGE Model

This research provides estimation of Brexit economic effects on trade and the overall economy of the UK with the help of the computable general equilibrium model of the GTAP Project (the GTAP model). The used methodology of both theoretical and empirical model implementation is founded on approved scientific practices and theories and is well-acclaimed in the scientific community. The simulation of two scenarios for the studied policy of the UK exiting the European union is provided: “Hard Brexit” as no-deal development of the current political situation between the studied regions and “Soft Brexit” as the Free Trade Agreement between the UK and the EU. The shocks for the model are constructed based on combination of two different approaches, which supports the actuality of the research: trade weighted most-favored nation rates of tariffs varying in time and ad-valorem equivalents of the European single-market effect derived from the structural gravity equation. The main outcome of the work has proved the disproportionality of the impact between the EU and the UK and supported the hypothesis with both internal and external trade and economic effects consideration. Evidence of trade creation has not been founded by the simulation, although the problem of trade diversion has been outlined in the model. Possible offset strategies for both regions have been traced, which can be used as recommendation for further trade policy regulation. Additionally, the research provides an illustrative estimation of labor effects and employment loss and allocates the overall Brexit effect to the regions of the UK.