The long-term economic implications of a Brexit might not be as negative as many studies suggest. The UK government could seek more favorable solutions on trade than the default options of the WTO framework or bilateral renegotiations of all the treaties. Moreover, economic policy has a role to play in mitigating the negative consequences. The long-term economic implications may thus be overstated, but the immediate risks may instead be underestimated. Brexit would act as a catalyst and trigger a typical balance of payment crisis, with a likely deep depreciation of the GBP and potential negative spillovers in the global financial markets.
The devil is in the detail
We are only days away from the UK referendum on its membership in the European Union and the outcome remains highly uncertain. Financial markets are already jittery. But what would be the true economic effects of a Brexit? Many studies have been published over the past few months. Many look very much alike. Many have even shared the same econometric model. Few voices break away from the pack. Almost all show a very negative effect on the British economy over the short and long run. However, simulations must be managed carefully, and it is necessary to scrutinize the details and underlying assumptions of these studies.