The impact of Brexit on trade patterns and industry location: a NEG analysis

Commendatore, Pasquale and Kubin, Ingrid and Sushko, Iryna (2018) The impact of Brexit on trade patterns and industry location: a NEG analysis. Department of Economics Working Paper Series, 267. WU Vienna University of Economics and Business, Vienna.


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We explore the effects of Brexit on trade patterns and on the spatial distribution of industry between the United Kingdom and the European Union and within the EU. Our study adopts a new economic geography (NEG) perspective developing a linear model with three regions, the UK and two separated regions composing the EU. The 3-region framework and linear demands allow for different trade patterns. Two possible ante-Brexit situations are possible, depending on the interplay between local market size, local competition and trade costs: industrial agglomeration or dispersion. Considering a soft and a hard Brexit scenario, the ante-Brexit situation is altered substantially, depending on which scenario prevails. UK firms could move to the larger EU market, even in the peripheral region, reacting to the higher trade barriers, relocation representing a substitute for trade. Alternatively, some EU firms could move in the more isolated UK market finding shelter from the competition inside the EU. We also consider the post-Brexit scenario of deeper EU integration, leading to a weakening of trade links between the EU and the UK. Our analysis also reveals a highly complex bifurcation sequence leading to many instances of multistability, intricate basins of attraction and cyclical and chaotic dynamics.

Item Type: Paper
Keywords: capacity constraint, depreciation constraint, nonnegativity constraint, piecewise smooth system, border collision bifurcation, centre bifurcation
Classification Codes: JEL C61, C63, F41
Divisions: Departments > Volkswirtschaft
Depositing User: Claudia Tering-Raunig
Date Deposited: 06 Aug 2018 11:33
Last Modified: 22 Oct 2019 00:41


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