Must-Read: Nicholas Crafts: Brexit: Lessons from History

Must-Read: Nicholas Crafts: Brexit: Lessons from History:

Joining the EU raised the level of UK real GDP significantly…

Leaving the EU will very probably have a negative effect on UK GDP, but history does not tell us how strong this effect will be…. The notion that there will be a faster rate of long-run trend growth facilitated by Brexit is not persuasive. The obstacles to better supply-side policy are, as ever, to be found in Westminster not in Brussels….

Gravity models of trade indicate that the EU has been highly effective in raising trade volumes, presumably because it has reduced trade costs more than is typical of trade agreements and achieved a relatively deep level of economic integration. Using the results in Baier et al. (2008), I estimate that leaving EFTA and joining the EU raised total UK trade by 21.1% by 1988 (Crafts 2016), and that this might be expected to have increased the level of UK GDP by 10.6%…. A key transmission mechanism was through the impact on productivity of increased competition, which was an antidote to bad management and dysfunctional industrial relations (Crafts 2012); at least through the 1986 Single Market Act, EU membership was an integral part of the Thatcher reforms. 
Third, the benefits of membership far outweighed any reasonable estimate of the membership fee entailed by net budgetary transfers and the Common Agricultural Policy, which amounted to less than 1% of GDP….

Although Eurosceptics complain about the costs of EU-imposed regulations, it should be recognised that the UK has persistently been able to maintain very light levels of regulation in terms of key OECD indicators such as product market regulation (PMR) and employment protection legislation (EPL), for which high scores have been shown to have significant detrimental effects (Barnes et al. 2011). In 2013, the UK had a PMR score of 1.09 and an EPL score of 1.12, the second and third lowest in the OECD, respectively. Moreover, it is noticeable that the regulations which it might be politically feasible to remove in the event of Brexit do not include anything that might make a significant difference to productivity performance (Booth et al. 2015)…