RESEARCH PROPOSAL
Economic Implications Brexit on EU Economy
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Abstract
This research proposal paper provides a summary of Brexit economic implications on the European Union (Cumming, D. J., & Zahra, S. A. (2016). It has a preliminary perspective that relates to the summary of the practitioners, the European Union policies, and all the resigning process regarding the beginning of voting out of the Brexit. The potential negatives of the UK markets, that may emerge due to the inconvenience caused by the Brexit.
Introduction
The United Kingdom, four years ago held a referendum about its memberships that are in the European Union. 48% of the voters agreed while 52% disagreed (Sampson, T. (2017). 52% of voters decided to leave the campaign. Brexit is one of them it is expected to be out by early 2019. There has been tremendous growth of economic and cultural globalization, since world war 11. Brexit decides on a new change and exit from the European Nations’ political integrations. The Brexit exit process was initiated by Prime Minister Theresa, through article 50 of the European Union. Leading to the official beginning of their withdrawal process (Bulmer, S., & Quaglia, L. (2018). The economic effects of Brexit will be far-reach for the EU and warrant scholarly examinations. Many scholarly articles have been brought to assess the impact of Brexit in the long term evolution of the EU. With their research findings, there is more to learn, in the EU policy-making and also comparative politics and also their economics.
The EU had constantly eroded UK sovereignty by changing the decision making from the parliament to Brussels. Many researchers also equate this to the high levels of immigration to the UK. As the Leave campaign brought the free movement of people among the member states (Jackson, J. K., et al (2016). The campaign also argues that the cause of the drastic decrease in the UK economy is the EU stating that in the long-run the economy of the country will increase without help from the EU. This paper will discuss the economical implication of Brexit and lessons for the future of Brexit on European and global integration. The main considerations are in the uncertainty that the Brexit will make the UK poor as it will bring upon trade barriers between the European Union and the United Kingdom.
Research Objective
On research to examine, the trade, migration production and contributions to the European Union, the budget would change regarding the changes over time (Hantzsche, A.et al. (2019). The assessment of trade with the European Union is going to be expensive as a result of Brexit. It is expected that there will be adverse effects on the living standards of the people in the United Kingdom. The modelling strategy is in a way that it focuses on the scenario of a small number, and the potential impacts of the UK economy after leaving the (EU Ebell, M., & Warren, J. (2016). The scenarios of Brexit shows substantial exchange rates depreciation and the attrition of the current economy due to the beginning of the referendum. The model also considered the post impacts of the Brexit Uncertainty in the UK economy immediately after the vote to leave the European Union.
The objective is to determine and ascertain the economic implications of the Brexit on the European Economy, the specific topics are addressed in turns. The main aim is too preliminary and speculative (Cumming, D. J., & Zahra, S. A. (2016). The desirable EU-UK relationship after the Brexit. None of the existing models of partnership between the EU and the UK will be suitable after the Brexit. The nerve of the Centre-right vision in trading is formed by economic benefits. Brexit was voted in by the less-educated, the old, and those who are not successful economically. Most of them were still believing in the ancient lives, thus they thought they have been left behind by the modern systems. To examine the trade changes of the Brexit and the European Union. A costly trade between the UK and the European (Kierzenkowski, et al (2016). To make any meeting with the EU, the administrative costs relating to the customs controls will be high. Increase in the costs of compliances on the policies of originality and conformity. Thus creating a diversion in the EU trade.
To find the methods on how Brexit will affect the UK’s trade, also the results on the financial incomes (Dhingra, S., et al. (2016). How the relationship between the UK and EU, will change following Brexit. The series of forecasts, estimations and assumptions, were recorded. Stressing on the narrow, trade consequences of Brexit.
Research Questions
The aftermath and uncertainties. For a country withdrawing from the EU, there is no precedent. Therefore, a high level of uncertainty is found in the separation process. This vote gives the UK some more time to remain in the EU. In the treaty framework article 50, allows a member state to withdraw from the EU (Jackson, J. K., et al (2016). The relationship between Brexit and the national business is faced with uncertainties. As some of the multinationals businesses have begun to decline their profits. Trying to reconsider if they can choose the UK as their business centre (Cumming, D. J., & Zahra, S. A. (2016). Others are also retrenching their operations. By laying other people off, and holding on their expansion plans. Concerning the 2014 financial budget, we can easily explain the economic effects of the Brexit (Nunez-Ferrer, J., & Rinaldi, D. (2016). If the UK market would have paid its net contribution, of $20 billion then there will be a decrease in the budget by over $13.1 billion.
It is argued that the UK has had an important role in the development of single financial markets (Howarth, D., & Quaglia, L. (2017). Especially before the financial crisis. This in turn made the British rules in the EU markets more friendly. Further integration of the single markets, gains its momentum with the action plan of 1999. Which had two components, the market making managed by the UK, and the Netherlands member states. It also had the market-shaping aspect which focuses on the regulation of the EU market and was comprised of France, Germany and Italy member states. Hence the Pre-crisis EU rules regarding finances were highly affected by the UK. The UK markets were influencing the EU financial market in the following ways. The UK was the third-largest EU member state in terms of its GDP. They also had high voting powers. The UK financial sector is the largest in the EU financial sector, with the city of London being the second largest in the world.
The result of Britain leaving the single market actively depends on the deal between the United Kingdom and the European Union, and how they will negotiate. If there is no new deal Britain will have to trade with the European Union other the new world trade organizations rules. Even if the economy of the UK has not had a recession since the beginning of the votes. There is various evidence that can support the decrease in the economic levels, that their initial positions (Tetlow, G., & Stojanovic, A. (2018). Their pound has undergone a devaluation of 11% against other currencies. Implying that many of the foreign and international investors have developed low interests in the UK economy. Due to all these factors, the UK economy has depreciated to a low level in the G7 economic table.
Free capital movement is related to a high free foreign direct investment. This free opportunity is only for the member states of the EU (Busch, B., & Matthes, J. (2016). This implies that British firms can easily invest in other EU states free, without any limitations. But the UK has been more attractive to the foreign Direct investments by the non-member states of the EU. Being a stepping stone for the third world countries to enjoy the free access of the EU member states internal markets.
Hypothesis
The long term effect of Brexit on the EU economy, a NIGEM model can be used to project on the impact of the Brexit on the EU economy, relative to the baseline. The long-term impacts on the economy and contrasting the outcomes for each of the Brexit scenarios. The decline in the market shares in the export sector, evidently, in the demand of the UK exports, affecting the sector of reduction in the export prices and also the reduction in the pound values (Ebell, M., & Warren, J. (2016). Brexit will lead to a reduction in the levels of economic integration, based on the United Kingdom and its trading partners. The hypothesis question emerging from this is how will these changes affect the European Union and the British economies. Another question is how will the consequences of Brexit depend on the decisions of the UK-EU relationship Sampson, T. (2017).
The British treasury stated that the single market has facilitated the steady and increase in the economic ties between the UK and the EU economies. Leading to an increase in the UK service delivery sector. Cumulatively amounting to 80% of the UK GDP. Including the production and manufacturing companies that rely on the cross-border of the EU countries Jackson, J. K., et al (2016). Various analyses and researches state that Brexit may have an immediate or long-term effect on the EU economies. Immediately after the vote of Brexit. The financial markets reacted negatively. Markets may remain volatile, due to the uncertainties of the disengagement of the UK from the EU economy, and the long and short term effects.
Some sectors are deeply rooted to Brexit. But the knowledge-based services may be limited if there will be rules to limit labour mobility between the UK and the EU. Previous researches show that immigration brings entrepreneurship and cross border investment plans. The legal barriers in immigration and trade may negatively impact the entrepreneurship levels, economic growth. This is simply because there is less team building between the international investors and the entrepreneurs (Cumming, D. J., & Zahra, S. A. (2016).
Methodology
Trade enables a country to import and thus consume more goods that are not consumed locally. The low trading barriers increase the level of competition between different companies (Dhingra, S., et al (2018). leading to low prices in goods for consumers. Big markets allow many companies to have a high level of production, thus taking advantage of the economy of scales to lower the costs and prices. The percentage change in income per capita from a change in the volume, of trade, can be summarized as =-1/Z multiply the change in the “1-import penetration ratio. The import penetration ratio can be defined as the ratio of a county’s total imports to its total demand. Z is the trade elasticity and it is an increase in percentage in a trade where its cost has fallen by 1%.
There have been the different amount of quantitative modelling on Brexit, by both the government officials and also the independent economists (Belke, A., & Gros, D. (2017). They both cover different scenarios such as the pessimistic and the optimistic spectrum. Including the spread between EEA and WTO scenarios. Nonetheless, all the modelling has provided some relatively consistent results. The main idea is one losing the economy by both parties but disproportionally between them in finances.
Model description, an object-oriented model for financial simulation was developed. This is due to the behavioural characteristics of economists. The model discusses the transactions that can take place between economy agents (Samitas, A., et al (2018). Object=oriented principles make sure that the data is exchanged freely between the economic agents. As developed and implemented by the model. It maintains the accurate transformation of data and other organizations’ structures can use the data appropriately. The economy is described as a non-moving interaction among heterogeneous agents, with different rational objectives. No equilibrium point is achieved, in comparison with the multiple dynamic are reached as the aforementioned interactions.
The system involving four different types of economic agents; the companies, the regulations, the banks and the households. Which can easily perform multi-period simulation of the bank environment? Banks can easily determine which firms or companies they can fund. The bank requests collateral, only which a half may be refunded if the project fails. The model deploys the use of data produced by bootstrap, from the internet availability of the European Union with the United Kingdom. In companies, the model uses data from the total assets and total outputs (Samitas, A., et al (2018). The data collected are based on, variables from Wong which examines the banks and firms with a financial crisis.
The use of formal method definition. The set of banks, the periods of households, set of banks and also the set of all economic agents, are the notations that are used in this model. Households may tend to place their excess cash balances in a bank. On issuing the cash the bank will issue high securities to its customers. All the time and the relevant statistics are recorded. Another method is the Brexit specifies. Which is commonly used for a single setup, For us to implement this method it is important to consider a two-group case scenario. (Samitas, A., et al (2018). Where the economic agents can simply perform transactions without any barriers. Also, the two split economic agents must give a clear picture of the UK economy to the EU economy.
Firms, households and banks are separated into two distinct groups. The first group is the UK group which includes banks that holds up to the total assets of its economy. Also the firms and the households up to the UK GDP levels. It should be noted that this analysis and research do not consider the uncertainty relating to the Brexit which may lead to a negative effect. Also, the fiscal benefits of the UK leaving the EU were not accounted for.
Overview of the literature to be applied.
We can execute around 1000 simulations with the above models. That is pessimistic and optimistic. A clear picture of Brexit’s variables was taken, consecutively 15 periods and 30 periods later (Samitas, A., et al (2018). The centre of economic performances has come up with many analyses to examine how Brexit can affect trade. The economic impacts are likely to be shared along its wide-spread of consumer prices (Dhingra, S., et al (2018). The EU is expected to give out new rules and guidelines that will also limit the market behaviours of states such as London. Thus enabling financial service companies to locate elsewhere in the EU. Brexit is also expected to have dire consequences for new venture startups and their funding.
These new ventures may easily be attracted to the EU markets. The fall in trade can also affect other countries, all the EU members are worse off. The consequences of Brexit can also be justified by the use of the results of the effects of EU membership from different empirical studies. EU member states trades substantially with their fellow EU member states than they do with members of EEA or the EFTA. It can be concluded that the UK’s Brexit negotiations came at a challenging time for the EU. The Eurozone and the migration crisis, which had no specific solution (Bulmer, S., & Quaglia, L. (2018). The UK’s departure may remove one semi-detached member from the EU but Brexit is but one of several challenges to EU governance and integration that will be under scrutiny from EU scholars over the coming months and years.
References
Sampson, T. (2017). Brexit: the economics of international disintegration. Journal of Economic Perspectives, 31(4), 163-84.
Bulmer, S., & Quaglia, L. (2018). The politics and economics of Brexit.
Jackson, J. K., Akhtar, S. I., & Mix, D. E. (2016). Economic implications of a United Kingdom exit from the European Union (pp. 1-18). Congressional Research Service.
Hantzsche, A., Kara, A., & Young, G. (2019). The economic effects of the UK government’s proposed Brexit deal. The World Economy, 42(1), 5-20.
Cumming, D. J., & Zahra, S. A. (2016). International business and entrepreneurship implications of Brexit. British Journal of Management, 27(4), 687-692.
Ebell, M., & Warren, J. (2016). The long-term economic impact of leaving the EU. National Institute Economic Review, 236(1), 121-138.
Kierzenkowski, R., Pan, N., Rusticelli, E., & Zwart, S. (2016). The economic consequences of Brexit: a taxing decision.
Dhingra, S., Ottaviano, G. I., Sampson, T., & Reenen, J. V. (2016). The consequences of Brexit for UK trade and living standards.
Nunez-Ferrer, J., & Rinaldi, D. (2016). The Impact of Brexit on the EU Budget: A non-catastrophic event. CEPS Policy Brief, (347).
Howarth, D., & Quaglia, L. (2017). Brexit and the single European financial market. J. Common Mkt. Stud., 55, 149.
Tetlow, G., & Stojanovic, A. (2018). Understanding the economic impact of Brexit. Institute for government, 2-76.
Busch, B., & Matthes, J. (2016). Brexit-the economic impact: A meta-analysis (No. 10/2016). IW-Report.
Dhingra, S., Ottaviano, G., Rappoport, V., Sampson, T., & Thomas, C. (2018). UK trade and FDI: A post‐Brexit perspective. Papers in Regional Science, 97(1), 9-24.
Samitas, A., Polyzos, S., & Siriopoulos, C. (2018). Brexit and financial stability: An agent-based simulation. Economic Modelling, 69, 181-192.
Belke, A., & Gros, D. (2017). The economic impact of Brexit: Evidence from modelling free trade agreements. Atlantic Economic Journal, 45(3), 317-331.