Is Hard Brexit Detrimental to EU Integration? Theory and Evidence

Abstract

In the struggle between the forces of free trade and the restrictive influence of insularism the latter recently seems to have the upper hand. This is illustrated by the referendum of June 23, 2016 where the United Kingdom (UK) voted to leave the European Union (EU). In this paper we evaluate the consequences of this event for EU integration. In particular, we analyze how the extent of EU economic integration would change once the UK leaves the Union. To that end we develop an integration benchmark that consists of the steady state production equilibrium characterized by arbitrage pricing and perfect factor mobility. We apply metrics to measure the distance between this benchmark and the data. We find that the integration in the EU is incomplete and its trend is non-linear while Brexit would not bring negative consequences to its development.

EU fiscal policy shifts: towards more integration?

“…One the one hand, these looms impeded deeper fiscal integration in the EU, but on the other, the restricted application of common provisions did not kick-start fiscal disintegration neither. Thus far, there has been no solid evidence of Brexit affecting the EU disintegration, fiscal or other (Czech & Krakowiak-Drzewiecka, 2019; Mikolajun & Viaene, 2019). With the country's farewell, the integration surely contracted, but other existing governing structures have been strengthened instead, 10 which clearly accentuates the retrench effect according to NNF.…”