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Miguel Carvalho

What The OECD Says About The Cost Of BREXIT

By Miguel Carvalho 2016-04-28 Economy Comments

The OECD published a report that analyses the economic consequences of the United Kingdom exit from the European Union.

London Eye

London Eye - Will the UK leave the EU? (Via.news image)

According to the OECD Policy Paper, the BREXIT outcome of the referendum to be held in June 23 "would be a major negative shock to the UK economy, with economic fallout in the rest of the OECD, particularly other European countries." It compares the BREXIT to a tax on GDP that would cause a rising cost to the economy that would not be incurred otherwise.

Short Term Effects

After a formal exit and over the next years until 2020, the UK economy would have a 3% drop in GDP caused by weaker confidence, tighter financial conditions, higher trade barriers and an impact of restrictions on labour mobility.

Estimated Cost by Household

The BREXIT outcome could, according to the OECD report, be equivalent to a yearly cost per household of GBP 2200.

Longer Term Effects

The OECD report expects that in the longer term, "structural impacts would take hold through the channels of capital, immigration and lower technical progress."

With the less immigrant inflow, the labour in the UK would have access to a lower skill pool, causing lower labour productivity and foreign direct investment (FDI).

According to the OECD, the extent of foregone GDP would increase over time with a 5% drop in GDP by 2030, equivalent to a GBP 3200 loss per household.

The Domino Effect Across Europe

Other European economies would also hold back GDP in a BREXIT scenario. The OECD report concluded it would result in "heightened uncertainty" about the future of Europe.

The NO to BREXIT Scenario

In contrast, the OECD points out to the fact that a continued UK membership in the European Union with further reforms of the Single Market would enhance living standards on the EU as a whole.

Furthermore, the UK economical prosperity had a significant contribution from the EU membership. The OECD report points out that in the last 42 years of European membership, the UK more than doubled the GDP per capita.

"Since 1973, when the UK joined the EU, UK GDP per capita doubled, increasing more than in other non-EU English speaking countries over the same period, including in the United States (US)"

Source "The Economic Consequences of Brexit: A Taxing Decision"



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