Quantifying the UK’s Post-Brexit Export Potential: A Gravity Model Analysis

Abstract

This study assesses the potential for enhancement post-Brexit of the UK’s non-EU trading relationships by comparing actual levels of UK exports to predicted levels based on gravity model analysis, including by taking into account factors such as similarity/dissimilarity of comparative advantage, economic freedom in partner countries, and the scope for upgrading diplomatic representation. The study finds that UK exports follow patterns consistent with the findings from the gravity model literature. Moreover, an ambitious, outward-looking export promotion policy could make up for foregone export potential to the EU under a soft exit from the Single Market in which the UK obtains a deep and comprehensive trade agreement with the EU. However, to offset the export losses are a hard exit would require raising the level of the UK’s global competitiveness based on inside the border measures to boost innovation and business development.