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LSE: Can Brexit defy gravity? Right now it is still much cheaper to trade with neighbouring countries

Is the UK locked into economic relationships dominated by geography? Can it reorient its trade and FDI patterns from the slower growing European economy to faster-growing markets in Asia, Latin America and Africa, as promised by the proponents of Brexit? In this article Saul Estrin, Christine Cote (LSE), and Daniel Shapiro (Simon Fraser University) concentrate their attention on trade in goods and conclude that in practice, it is much cheaper to trade with neighbouring countries, and it will remain so in the near term.

One of the arguments made in favour of the UK withdrawal from the EU is that the deep process of trade integration between EU members restricts the ability of the UK to trade with other, perhaps faster growing, economies in Asia and the Americas. Thus the UK is said to be tied by trade agreement to a group of economies that are expanding slowly, while being less able to exploit opportunities in more dynamic regions. There seems some a priori evidence for this; using World Bank data, Europe as a region on average saw real GDP growth of 1.6% in the 1990-2000 period and the same, 1.6%, since then to 2017. This contrasts with other regions, for example South Asia, where comparable growth rates are 5.6% and 7%, or Sub-Saharan Africa with 2.4% and 5.4% respectively. So why pin your colours to the mast of the slowest ship in the race?

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