Maureen Lankhuizen (p), Mark Thissen

Edgar Morgenroth

This paper illustrates the importance of taking into account re-exports for (1) gravity equation estimations and (2) trade policy by looking at two current events in international trade policy. Estimations of gravity equations yield significantly different results for geographical distance and adjacency when re-exports are taken into account. The US trade deficit with Mexico is an important issue in the renegotiation of NAFTA. We show that the importance of Mexico as a trade partner to the US is likely to be overstated. Regarding Brexit, we show that re-exports may constitute additional costs for the UK economy due to the loss of the hub function. In order to analyze re-exports, this paper derives bilateral trade flows corrected for re-exports for a large number of countries and at a detailed product level, using data from the World Input-Output Database (WIOD). Through a constrained non-linear optimisation procedure, complete origin-destination matrices of re-exports are determined. We then restore re-exports to their most likely origin and destination.

Markus Ketterer , Bart Los (p)

Maureen Lankhuizen

Draft of full paper has been uploaded

Short abstract:
Right after the Brexit Referendum the Pound Sterling (the UK’s currency) devalued, reflecting the opinion of actors on financial markets that the UK economy would be weakened by the departure of the UK from the EU trade bloc. This devaluation increased the international competitiveness of UK industries: exports became cheaper. The activities of UK industries in global value chains also implied a countervailing force: the imports required to export became more expensive. The magnitude of the net effect depends on the production structure, which varies across regions. Many observers have reasons to believe that the already less affluent Northern part of England will in the long run suffer more from Brexit than London and the Southeast of the UK. How did the short-run effects of the pound’s devaluation most likely play out for various parts of the UK?



In this paper, we use the “Value Added Real Effective Exchange Rates” concept as introduced by Bems and Johnson (2017) at the regional level. To this end, an input-output table that integrate UK regions and the world economy into a single data framework are needed. We use the tables as constructed by Thissen et al. (2017), which includes data on the production structures of 37 UK regions, the linkages between these, and their trade linkages to other countries included in the World Input-Output Databases.

We find that Scottish regions benefitted much less from the dip of the pound sterling. With the exception of Northern Ireland (a poor region), the main beneficiaries of the devaluation were regions in the South, and London. Hence, the short-run effects of Brexit have most probably also led to a regional distribution of effects that further increases regional inequality in the UK.

Chloe Billing , Philip McCann (p), Raquel Ortega-Argilés

Bart Los

Our paper examines the preparedness of different sub-national government arenas to the challenges raised by Brexit and will discuss the types of actions and initiatives that are currently being undertaken. We also discuss the options for a new post-Brexit model of regional and urban policy, and consider the potential relationships between policy actions and governance. Our analysis also considers how regional and urban policy might interface and interact with industrial policy, and examine some of the options for how new meso-level institutions could facilitate these interactions.

Edgar Morgenroth (p)

Philip McCann

While the uncertainty about the nature of the future relationship between the UK and the EU makes it difficult to assess the impacts of any changes, it is imperative from a policy perspective to assess potential impacts of Brexit. The analysis at the national level indicates that the impact of Brexit differs significantly across EU member states. These differences are largely a function of the trade intensity with the UK and the specific trade specialisation. Given the significant spatial heterogeneity within countries it is also likely that the impact of Brexit to differs across regions within countries, but regional impacts have received less attention.
Outside the UK the most significant impact is likely to be on Ireland given that it is the only country with a land border with the UK and given the historical relationships between the UK and Ireland. This suggests that the regional dimension of Brexit impacts is likely to be more pronounced in Ireland.
This paper builds on the analysis of Lawless and Morgenroth (2016a,b) to the county level in Ireland. Lawless and Morgenroth (2016a) conducted a simple microsimulation analysis of the impact of WTO tariffs on merchandise trade for all current EU members. This paper maps their national trade impacts to employment by sector and county in Ireland. Likewise, it extends the analysis of Lawless and Morgenroth (2016b), which considered the possible relocation of FDI from the UK to Ireland, to the county level.
The paper will show that the differences in sectoral specialisation across Irish counties imply very different exposures to a hard Brexit. The sectors that are more susceptible to a hard Brexit (e.g. agri-food) are most heavily concentrated in the more remote rural areas and particularly in the Border region of Ireland. Those areas are therefore likely to be most affected by a hard Brexit. While Ireland is attractive for FDI, over the recent past foreign investment tends to concentrated in specific sectors, and particularly services including financial services. Spatially this is increasingly concentrated in and around the larger urban centres. Thus, it is likely that any gain of FDI due to Brexit will be concentrated in the urban areas. With rural and more remote areas likely to suffer more from Brexit and while the impact on the larger urban centres might be ameliorated by some FDI inflows, Brexit is likely to increase regional disparities in Ireland.