Article Review The Consequences of Brexit for UK Trade and Living Standards by Dhingra, Ottaviano, Sampson and Reenen (2017)

ArticleReview:The Consequences of Brexit for UK Trade and Living Standardsby Dhingra, Ottaviano, Sampson and Reenen (2017)

ArticleReview:The Consequences of Brexit for UK Trade and Living Standardsby Dhingra, Ottaviano, Sampson and Reenen (2017)

Thethreat to the United Kingdom leaving the European Union is perhapsone of the most significant, current world events that have attractedconcerns over the associated implications. The history of theformation of the European Union traces to 1945, having been triggeredby the desire of the European nations to unite to avoid any futureconflicts. Winston Churchill, in his advocacy of the idea of theEuropean Union, envisaged the possibility of building a social,economic, and political structure in Europe could exist in peace,freedom, and harmony, like a kind of a ‘United State.` Later, thisdream would come true —some countries came together to form theEuropean Union and then were joined by several others. The EuropeanUnion member countries have long enjoyed a period of harmony, but notuntil recent. Following the general election of 2015 in which theConservative Party clenched victory, the -elected Prime MinisterDavid Cameron asserted his commitment to the party manifesto to holda referendum on the rethink of the membership of Britain within theEuropean Union. The vision of the party is to see if Britain couldexit the European Union as early as 2017. The party has been engagingin rounds of negotiations with the E.U. authorities and, recently,Prime Minister David Cameron announced Britain would conduct areferendum on Thursday, 23 June 2016 to decide whether it shouldremain in the European Union. Critics have divided on whether Brexitcould be beneficial or detrimental Britain. This paper reviews thearticle by Dhingra, Ottaviano, Sampson and Reenen (2017).

ArticleSummary

Thearticle by Dhingra, Ottaviano, Sampson and Reenen (2017) argues thatin general, the United Kingdom would lose out a lot from Brexit. Theauthors begin by acknowledging that the European Union has been thelargest trade partner of the European Union. As significant as 50percent of the United Kingdom’s trade was with the European Union.Considering the members of the European Union enjoy some reducedtariffs, they receive relatively cheap services and goods from eachother and, at the same time, allow the United Kingdom to export moreproducts. In this regard, the primary economic benefits of Brexitwould be little. Besides, all other countries in the European Unionwill lose their incomes after the Brexit. The GDP fall in the UnitedKingdom would be as much as £55 billion, almost two times the grossdomestic product (GDP) loss for the rest of the European Unionmembers combines. The long-term loss of productivity will be about6.3 percent to 9.5 percent of the country’s GDP. Moreover, thestate will lose out the bargaining deals with the non-Europeancountries, considering its economy is only 18% of the E.U.’smarket. Many other countries would be interested in the remaining,significant share within the European Union. Certainly, one of thestrongest claims that the article makes is that both the EuropeanUnion and the United Kingdom would lose from Brexit, although theUnited Kingdom would lose a lot in the end. In light of the view ofthese articles, it becomes intriguing to question who would be theloser after Brexit. In particular, would it be the United Kingdomalone, or both the U.K. and the rest of the European Union?

ALook at Positive Aspects and Contradictions and Inconsistencies inthe Article

Thequestion of the implications of Brexit on Britain appears complicatedbecause it can be approached from different angles, and these maylead to different results. For convenience, this critique will notdelve into documenting different angles and perspectives from whichto approach the potential implications of Brexit. Rather, based onthe typical nationalist view that the article advances, the critiqueconsiders it a novel idea to examine the role Britain has beenplaying towards the European Union and the gains it has made from theEuropean Union.

Inthis regard, the examination of the consistency of the article isdivided into two. First is the discussion of Britain’s role as theprovider of financial services within the European Union. Second isthe discussion of benefits that Britain has reaped from the EuropeanUnion. Several questions are discussed. The critique entails relatingthe article’s insights with those of the other authors. It is hopedthat, in the end, the discussion will successfully validate thearticle by Ottaviano, Sampson, and Reenen (2017).

TheContributions of Britain towards European Union — What is theSacrifice?

Thecontribution Britain makes towards the European Union has been one ofthe areas contested between two sides —while one side has assertedBritain contributes than it gains, the other hand has argued Britainmakes as much contribution as it gains. Therefore, the best way toapproach the issue is by consulting the financial data on the U.K.contributions towards the E.U.

Asdocumented by Peterson(2014),as of 2015, the membership fee of U.K. would be £17.8 billion, butbecause of the 1984 Margaret Thatcher’s rebate deal that allowsannual reductions of its contributions, only £12.9 billion werepaid. This amount has been argued to be significant. For instance,Tim(2016) claimsthat, compared to the U.K. gross budgetary expenditures, this amountis significant. The amount exceeds the budget of Home Office, whichis around £9 billion a year, and it is as large as a tenth of thebudget for the NHS in England. The question of what Britain gets backfrom the European Union is then perhaps a critical issue that shouldbe considered. The data from EMES European Research Network (2013)documents that Britain gains to the extent from the European Union.Many of the contributions are channeled back to the U.K. economy inthe forms of grants and subsidiaries. For instance, the Britishfarmers derive funds from the Common Agricultural Policy schemes. TheEuropean Union funds are invested in various economic development andscientific research projects within Britain. For instance, thepayments from the European Union to the British public in 2015 were£4.4. The payment from the European Union to the privateorganizations was about £1.4 billion in 2013 (Peterson,2014).Inessence, Britain gets back over £6 billion a year, and this can begenerally considered a beneficial aspect of Britain’s membership ofthe European Union. If Brain left the European Union, it might likelylose such benefits.

Mostof the dominant notions that make the United Kingdom critical toEuropean Union activities is its strategic position, the kind thatpresents it as a financial center of the European Union. In thiscontext, a financial center is defined as a location that harbors orserves international or regional clusters of financial services suchas investments, stock exchanges, skills, and stock exchange.Indeed,the position of United Kingdom is such a pivotal financial center tothe European Union. In particular, the status of the city of Londonas the world leader in terms of financial services has created theallowance for London to become a hub in which investors and companiesaround the world are now meeting and doing business. Theinternational companies now need financial access to support growthand generate development. However, the conventional sources offunding such as the banks are not as flexible as the business wouldneed. The city of London has emerged as a financial innovation hub tomeet the demand of the market. International companies can accessfinancial services such as private equity, venture capital, crowdfunding and peer-to-peer lending (Tim2016).

Inthis regard, it is indisputable that United Kingdom’s contributionstowards the European Union are quite significant. These contributionsare manifested in terms of membership fees that United Kingdom paysto the European Union, as well as the financial center position thatLondon provides to support the E.U. economic activities. If Brexitdeal materializes, the European Union will certainly lose.

ThePerceived Gains of Britain from the European Union — Have They Beena Costly Affair?

Thebenefits that Britain reaps from the European Union are based onthree areas of economic activities. These are trade between the U.K.and E.U., the jobs in the U.K. associated with the E.U. occupationand foreign investments related to the European Union.

Downand Mertens (2016) showthat as of 2015, the U.K. exported goods and services worth over £223billion to the European Union member states. The value of EU-relatedexports was as significant 43.7 percent of its total exports. Overthe same period, U.K. imported goods and services worth £291billion, accounting for 53.1 percent its total imports. The U.K. hada deficit of £68 billion with the E.U., but a surplus of £31billion in a trade with non-European Union members. In 2015, the U.K.exports to the United States and China was £95.1 billion and £15.9billion, respectively. The European Union bloc has been the largestU.K. trading partner, although the volume of trade has beenfluctuating over time. For instance, the share of the exports fromthe U.K. to the other European Union members reduced from 55 percentin 2002 to 44 percent in 2015. On the other hand, the shares of theexports from the U.K. to other European Union members dropped from 58percent in 2002 to 51 percent in 2011 but regained to 53 percent in2015.

Severaldata records have indicated that European Union activities havecreated several jobs in the United Kingdom. For instance, accordingtoPeterson(2014),EuropeanUnion creates as many as three million jobs in the U.K., and theseare either directly or indirectly linked to the export of servicesand goods to the European Union. Interestingly, both parties haveacknowledged the aspect of job creation following engagement with theEuropean Union activities. However, it is worth noting that themethodology behind the estimates of jobs thought to be linked withthe European Union has come under scrutiny. This follows that themethod does not clearly articulate if the created jobs areexclusively related to the European Union, or would still have beenset up without E.U. engagement. These investments created over 30,000 jobs, a figure that is higher than the contribution of othercountries within the European Union (Tim2016).

TheUnited Kingdom has been widely cited to be a primary recipient ofinward foreign direct exchange and is a significant investor in theoversea economies. As of 2014, United Kingdom had the highest stockof inward foreign direct investment (FDI), coming after US and China.As of 2014, the members of the European Union accounted for only 48percent of the United Kingdom’s FDI stock. This figure compareswith 24 percent and 48 percent from the United States and othercountries, respectively. The shares accounted by the European Unionhas been fluctuating over time, but ranging between 47 percent and 53percent, respectively. As far as the investment of United Kingdomabroad is concerned, the European Union accounted for 40 percent ofthe 2014 foreign direct investments of the United Kingdom stock(Haugh and Tracey, 2014). The European Union only accounts for 19percent of the foreign direct exchange inflows to the United Kingdom,compared to 55 percent of the net FDI flows from the United States tothe United Kingdom. As from 2005 to 2014, the FDI flow into the U.K.from the European Union was 44 percent. The popularity of the UnitedKingdom as a very attractive foreign direct investment regioncontinues to grow. Indeed, according to Wheelerand Hunt (2016),the United Kingdom attracted substantial FDI than other EuropeanUnion members in 2014. These investments created over 30, 000 jobs, afigure that is higher than the contribution of other countries withinthe European Union (Peterson,2014).Therefore, it can be inferred that, to a certain significant extent,the United Kingdom benefits from the European Union. These benefitsare evident in terms of trade, jobs, and foreign investments. If theUnited Kingdom left the European Union, it will certainly have tocontend with the detrimental side.

Conclusion

Inconclusion, the aim of this paper has been to examine theimplications of Brexit based on insights by Dhingra, Ottaviano,Sampson, and Reenen (2017), questioning who is likely to gain orlose. The discussions find evidence to validate the views presentedin the article. Certainly, if the move by Britain to leave theEuropean Union should have some benefits, these will not besignificant enough to overshadow the detrimental outcomes that maynot only be felt by the European Union but also the United Kingdomitself. Based on the common nationalist view that state interests insafeguarding its interests must balance its internationalcontributions with national benefits, this discussion considered anovel idea to examine the role Britain has been playing towards theEuropean Union, and the gains it has made from the European Union. On one hand, if Brexit materializes, the European Union will lose thesignificant membership fee that the United Kingdom contributes. TheEuropean Union might also be cut out from benefiting from London as afinancial center. On the other hand, the United Kingdom may lose interms of trade, foreign exchange, and job opportunities associatedwith the European Union occupation.

References

Dhingra,S.,Ottaviano,G., Sampson, T. &amp Reenen, J. (2017). TheConsequences of Brexit for U.K. trade and Living standards.Center for Economic Performance. Retrieved fromhttp://cep.lse.ac.U.K./pubs/download/brexit02.pdfDown,S. and Mertens, H. (2016). Sconesor Croissants? Brexit: The Route to Exit and Key Risks.Retrieved fromhttps://www.nikkoam.co.U.K./articles/2016/03/scones-or-croissants-brexit-the-route-to-exit-and-key-risks

EMESEuropean Research Network, (2013). Socialenterprise: a New model for Poverty Reduction and EmploymentGeneration.Bratislava: UNDP Regional Bureau.

Haugh,H. and Tracey, P.,(2014). TheRole of Social Enterprise in Regional Development. University ofCambridge,U.K.. Cambridge: Cambridge-MIT Institute.

Peterson,J. (2014). &quotEnlargement, reform and the European Commission.Weathering a perfect storm?&quot. Journalof European Public Policy, special issue: Reforming the EuropeanCommission15(5): 761–780.

Tim,O. (2016). A European Union Without The United Kingdom TheGeopolitics Of A British Exit From The EU. StrategicUpdate16.1 February 2016

Wheeler, B &amp Hunt, A. (2016). “The U.K.`s E.U.referendum: All you need to know”. BBCNews.Retrieved from http://www.bbc.com/news/U.K.-politics-32810887