EU enlargements, Brexit and value-added trade: A structural gravity approach

Area of Science:

• Economics
• International Trade

Background:

• The economic effects of European Union (EU) enlargements on international trade patterns are a critical area of study.
• Understanding these effects is crucial for assessing economic integration and policy impacts.

Purpose of the Study:

• To quantify the trade effects of past EU enlargements on value-added trade.
• To analyze the impact of these enlargements on Gross Domestic Product (GDP).
• To provide insights into the potential economic consequences of Brexit.

Main Methods:

• Employing a structural gravity model to analyze trade in domestic value added.
• Utilizing the latest econometric techniques, including Poisson Pseudo-Maximum Likelihood (PPML) estimation and multi-dimensional fixed effects.
• Estimations based on the Trade in Value Added (TiVA) dataset, with robustness checks using the World Input-Output Database (WIOD).

Main Results:

• EU enlargements have led to a stable increase in value-added trade, estimated at approximately 13.9%.
• The methodology allows for direct calculation of trade impacts on GDP levels.
• Country-specific impacts of Brexit on value-added trade with the UK are quantitatively assessed.

Conclusions:

• Past EU enlargements have a significant and positive impact on value-added trade.
• The findings provide a robust estimate of the trade creation effects of integration.
• The research offers valuable insights for understanding post-Brexit trade dynamics and economic adjustments.