María Alexandra del Castillo

Brexit: The Economics of International Disintegration Summary

Brexit is the process by which United Kingdom intends to leave the European
Union. This means that Great Britain will no longer be under the political and economic
laws of the EU leading to new frontiers for trade and integration. This decision marks the
end to a period characterized for economic growth and globalization that stared with the
end of Second World War. Since the Brexit hasn’t occurred yet there is speculation of how
it will affect United kingdom’s and worldwide economy, politics and social aspects like
migration, studies have shown that it will have a negative impact not only on Britain but on
the whole European Union.

One of the main questions is why UK voted to leave the EU, reasons are not clear
but it is thought that the triumph of this decision is motived from the desire to take back
control from the union and gain autonomy this is driven by intense nationalistic feeling
typical of conservative ideologies. The next step Britain has followed is to concrete an
agreement with the union in a deadline of two year which expires on March of 2019, this
agreements seeks to stablish the best deal regarding trade, financial status and how
migration of EU members to United Kingdom will work. Respecting trade UK has several
options one is to join the European Economic Area, another is to sing a free trade deal
between this country and the union and the final option is to trade under the terms of the
World Trade Organization.

No choice provides the same exacts benefits for trade as being an official member
of the union. The most similar is joining the European Economic Area but this implies the
same obligations with the European Union and less privileges. On the other hand a free
trade agreement could be useful but a disadvantage of this kind of consensus is it restriction
to trade exclusively and leaves behind crucial issues as migration adiccionaly it forces
countries to adopt many pieces of economic legislation form the EU. On some
pronouncements from member countries they have signaled to be willing to maintain traded
relationships with Great Britain only if the compromise to allow free movement of labor.
Prime Minister Theresa May has chosen to seek a free trade agreement.

The United Kingdom depends more on the union than in a contrary way, an
example of this is the fact that 44% of UK exports and 53% of its imports are accounted to
the EU. In order to predict the impact of Brexit on both economies there have been used
three strategies. The first one is to analyze the outcomes that brought joining the union,
they were positive for example GDP per capita increased. The second one is to simulate the
María Alexandra del Castillo

Brexit though computational general equilibrium trade models this has shown three ways in
which Brexit may affect trade costs: tariffs, nontariff barriers and changes on the intra-EU
trade cost and has thrown many negative results regarding finance industry. The third one is
the reduced-from evidence approach in which is used the “gravity equation” to estimate
how being an EU member affects Britain´s trade and based on this results the elasticity of
income per capital is estimated. This process has shown that Brexit will reduce income per
capita. Regarding other aspects like migration Brexit will also have a negative impact
because it will reduce it and in consequence it will reduce foreign inversion diminishing the
of important industries such as car production.

The political party that impulses Brexit is the conservative or Labor Party, the
referendum hold in 2016 in which the choice to leave the EU won showed that voter that
supported Brexit where localized in England and Wales and where older and less-educated
that one’s against this proposal. Also a relationship between opposition to migration and
voting yes to Brexit was found, those who believe Britain should accept less immigrants
supported Brexit.

As a conclusion more negative consequences have been forecasted from Brexit than
positive ones, it has been predicted that leaving the EU will make Britain poorer since it
will increase the barriers for trade and also it will reduce foreign inversion. The agreement
that UK establishes with the union is crucial to determine the future of the economy of
Great Britain leaving three main options: join the European Economic Area, sing a free
trade deal between this country and the union and the final option is to trade under the
terms of the World Trade Organization.