Brexit, Trade, and Gross Value Added

This is a preview from the National Institute Economic Review, August 2016, no 237

Ahead of the forthcoming issue of the National Institute Economic Review (NIER no. 237) that will be published on Wednesday 3rd August, we release a series of boxes, each of them looking at specific aspects of the economic implications of the EU Referendum outcome.

This box, prepared by Dr Monique Ebell, analyses the impact of Brexit on the UK economy using gross value added data.

Ebell and Warren's (2016) projected impact on GDP from reductions in trade with the EU might be a lower bound. Monique Ebell, Research Fellow at NIESR, said: “If we examine value-added data, a loss of trade would have a larger impact on the domestic economy than relying on trade volume data alone. The reason is that our value-added approach takes into account that services have a high domestic value-added content, so that services exports have a larger impact on the domestic economy than do manufacturing exports”.

About one-quarter of the UK's total gross value-added (GVA) came from exports in 2011. Exports to the EU made up just under one half of that, accounting for about 11.5% of the UK's total GVA. Drawing on the academic literature to illustrate the impact of leaving the EU on UK GVA; remaining in the EEA, with a status similar to Norway's, might lead to a reduction in GVA of between 2.5% and 4.4% compared to the baseline of remaining in the EU. Under WTO status, the direct impact might be a reduction in GVA of between 5.4% and 8.2% of GVA, again compared to the baseline of remaining in the EU.