Capital Ideas Blog

what economists think about brexit

By Hal Weitzman

From: Blog

British voters are expected to decide this year whether the UK should leave the European Union. Although the date has not yet been set, the “in-out” referendum could be held as early as this June, following Prime Minister David Cameron’s pledge in the 2015 election to stage the vote if his party won.

The economic effects of “Brexit” are unclear. An analysis by the Centre for Economic Performance at the London School of Economics reckons that the loss to the UK of withdrawing from Europe would be between 2.2 percent and 9.5 percent of GDP. But Open Europe, a think tank, calculates that under a best-case scenario, the UK economy could be better off by 1.6 percent of GDP by 2030. Much depends in these forecasts on whether the standalone UK could negotiate a trade agreement with the EU and undertake economic reforms currently limited by its EU membership.

Chicago Booth’s Initiative on Global Markets ran an Economic Experts Panel poll with two questions on the issue.  

First, if the UK withdraws from the EU, will its per capita income be lower in a decade than if it remains a member? Some 41 percent agreed. Secondly, would Brexit increase the likelihood of another country leaving the EU within a decade? Almost two-thirds, 64 percent, thought so.

On the first question, Oliver Hart of Harvard was among the 4 percent of panelists who strongly agreed: “The EU is Britain’s most important trade partner. Trade barriers with the EU would rise and this will hurt Britain’s investment and growth.”

Austan Goolsbee of Chicago Booth was uncertain: “Leaving is awful. The eurozone prospects are awful. Which is more awful? Awfully hard to tell.”

And Alberto Alesina of Harvard disagreed, with skepticisim towards the premise: “We will never know.”

On the second question, David Autor agreed: “Once unraveling begins, it decreases both the benefits of staying and the costs of exiting for the next ambivalent country.”

Anil Kashyap of Chicago Booth also agreed, suggesting that if Britain left the EU, Scotland would leave Britain, and that would have further consequences for the EU: “Scotland would be very likely to go and resolving the legal ambiguities will embolden separatists elsewhere such as Catalonia.”  

Jonathan Levin of Stanford was uncertain: “[The] UK situation [is] perhaps a bit different than many other because of [its] own currency, and historical ambivalence about being part of Europe.”


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