1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

The potential economic impact of Brexit on Denmark

This paper provides estimates of the potential trade effects on exports and production at the sectoral level as well as GDP in Denmark of the exit of the United Kingdom (UK) from the European Union (EU). Owing to the high uncertainty regarding the final Brexit deal between the EU and the UK, this paper assumes a worst case outcome where trade relations are governed by World Trade Organization (WTO) most favoured nation (MFN) rules. In doing so, it provides something close to an upper bound estimate of the potential negative economic impact. Any trade agreement that would result in a closer relationship between the United Kingdom and the EU than WTO rules reduces the negative impact.

Under the worst case illustrative scenario assumed in this paper, Danish exports to the UK fall by 17%, total exports and GDP decline by 1.3% in the medium term. This effect is from the trade channel absent any change in foreign direct investment (FDI) or productivity. The fall in exports is concentrated in the Danish agri-food and machinery and equipment sectors, which account for half of the export reduction. Exports to the UK of agri-food and machinery and equipment fall by 24% and 17% respectively. Smaller manufacturing sectors such as wood and leather products, metals and textiles see falls of over 20% in their exports to the UK. The chemicals sector, which includes pharmaceuticals, comprises 9.5% of Danish exports to the UK and would experience an 18% reduction in its exports to the UK.

Seven Danish sectors experience production declines of over 2.5% in the scenario. The largest decline is in the meat products sectors (7%), metals (3%), material manufacturing (2.3%) and other agri-food sectors (2.2%). These sectors would also see the largest declines in labour demand.

English

Keywords: international trade, METRO model, sectoral economic effects, computable general equilibrium model, European Union, Brexit, Denmark
JEL: F13: International Economics / Trade / Trade Policy; International Trade Organizations; B17: History of Economic Thought, Methodology, and Heterodox Approaches / History of Economic Thought through 1925 / International Trade and Finance; F14: International Economics / Trade / Empirical Studies of Trade; C10: Mathematical and Quantitative Methods / Econometric and Statistical Methods and Methodology: General / Econometric and Statistical Methods and Methodology: General; C68: Mathematical and Quantitative Methods / Mathematical Methods; Programming Models; Mathematical and Simulation Modeling / Computable General Equilibrium Models
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