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How would independence affect Scotland's economy?
My new @CEP_LSE research with Hanwei Huang & Patrick Schnedier @patricksecon studies impact of changes in trade costs from creation of border between Scotland and rest of UK
Three main findings
https://cep.lse.ac.uk/pubs/download/brexit17.pdf 1/
My new @CEP_LSE research with Hanwei Huang & Patrick Schnedier @patricksecon studies impact of changes in trade costs from creation of border between Scotland and rest of UK
Three main findings
https://cep.lse.ac.uk/pubs/download/brexit17.pdf 1/
Finding 1. Independence would be two to three times more costly for Scottish economy than Brexit.
Why? Scotland trades four times more with rest of UK than with EU. Consequently, has more to lose from putting up trade barriers with rest of UK than with EU.
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Why? Scotland trades four times more with rest of UK than with EU. Consequently, has more to lose from putting up trade barriers with rest of UK than with EU.
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Finding 2. Independence and Brexit combined estimated to reduce Scottish income per capita by 6-9% in long run
These estimates are subject to considerable uncertainty & do not incorporate potential productivity changes, but show losses from independence could be substantial. 3/
These estimates are subject to considerable uncertainty & do not incorporate potential productivity changes, but show losses from independence could be substantial. 3/
Finding 3. Rejoining EU would not offset costs of independence. We estimate losses are similar regardless of whether Scotland rejoins the EU
Why? Rejoining EU would reduce Scotland-EU trade costs, but put EU's external border within Britain. These effects roughly offset. 4/
Why? Rejoining EU would reduce Scotland-EU trade costs, but put EU's external border within Britain. These effects roughly offset. 4/
Other conclusions ...
Costs of independence to rest of UK are small, less than half a percent fall in income per capita. 5/
Costs of independence to rest of UK are small, less than half a percent fall in income per capita. 5/
Trade effects of independence likely to emerge slowly over generation or more.
In initial decades after independence rest of UK will continue to be Scotland’s most important trade partner. Medium-run priority should be keeping border costs with the rest of the UK low 6/
In initial decades after independence rest of UK will continue to be Scotland’s most important trade partner. Medium-run priority should be keeping border costs with the rest of the UK low 6/
Caveats ...
Cannot know for certain how 'high' the Scotland-rest of UK border would be. Based on previous research, we consider an optimistic case with 15% trade cost increase with rest of UK due to independence & pessimistic case with 30% increase. 7/
Cannot know for certain how 'high' the Scotland-rest of UK border would be. Based on previous research, we consider an optimistic case with 15% trade cost increase with rest of UK due to independence & pessimistic case with 30% increase. 7/
We do not model impact of higher trade costs on productivity, which could magnify the losses.
Only consider trade effects. Changes in fiscal arrangements, currency, investment flows also likely to have important economic effects. 8/
Only consider trade effects. Changes in fiscal arrangements, currency, investment flows also likely to have important economic effects. 8/
Summary.
Costs of independence likely to be two to three times larger than costs of Brexit
Rejoining EU would do little to mitigate these costs & in short run would probably lead to greater losses than maintaining a common economic market with the rest of the UK 9/
Costs of independence likely to be two to three times larger than costs of Brexit
Rejoining EU would do little to mitigate these costs & in short run would probably lead to greater losses than maintaining a common economic market with the rest of the UK 9/
