I happened to be in the United Kingdom on a long-planned family vacation on June 23, 2016, when the Brexit vote took place. At the time, I offered a stream-of-consciousness “Seven Reflections on Brexit” (June 26, 2016). But more than year has now passed, and Thomas Sampson sums up the research on what is known and what might come next in “Brexit: The Economics of International Disintegration,” which appears in the Fall 2017 issue of the Journal of Economic Perspectives.
(As regular readers know, my paying job–as opposed to my blogging hobby–the Managing Editor of the JEP. The American Economic Association has made all articles in JEP freely available, from the most recent issue back to the first. For example, you can check out the Fall 2017 issue here.)
Here’s Sampson’s basic description of the UK and its position in the international economy before Brexit. For me, it’s one of those descriptions that doesn’t use any weighted rhetoric, but nonetheless packs a punch.
“The United Kingdom is a small open economy with a comparative advantage in services that relies heavily on trade with the European Union. In 2015, the UK’s trade openness, measured by the sum of its exports and imports relative to GDP, was 0.57, compared to 0.28 for the United States and 0.86 for Germany (World Bank 2017). The EU accounted for 44 percent of UK exports and 53 percent of its imports. Total UK–EU trade was 3.2 times larger than the UK’s trade with the United States, its second-largest trade partner. UK–EU trade is substantially more important to the United Kingdom than to the EU. Exports to the EU account for 12 percent of UK GDP, whereas imports from the EU account for only 3 percent of EU GDP. Services make up 40 percent of the UK’s exports to the EU, with “Financial services” and “Other business services,” which includes management consulting and legal services, together comprising half the total. Brexit will lead to a reduction in economic integration between the United Kingdom and its main trading partner.”