OPINIONS ON FREE TRADE
& BREXIT
Jacob A. Jordaan
Utrecht University School of Economics
j.a.jordaan@uu.nl
Outline
• Introduction
• Brexit
• How do citizens percieve trade and integration?
• Empirical evidence: winners and losers of globalisation
• Wrapping up
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Literature
• Sampson, T. (2017) Brexit: The economics of international
disintegration. Journal of Economic Perspectives, vol. 31.4, p.
163-184
• Teney, C., Lacewell, O.P. and de Wilde, P. (2014) Winners and
losers of globalization in Europe: Attitudes and ideologies.
European Political Science Review, vol. 6.4, p. 575-595
• Additional material
• HM Treasury (2016) Section 3 – Macroeconomic analysis of
the alternatives to EU membership and the benefits of EU
reform. Pages 121-150 in HM Treasury analysis: The long term
economic impact of EU membership and the alternatives.
Williams Lee Group
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Introduction
• Trade theories indicate that trade is good for welfare
• Global economy is characterised by high level of
globalisation
• Trade in goods and services, internatioal capital investments,
migration flows
• The large majority of countries follow policies that
foster globalisation
• Growing level of interdependence
• Growing levels of international governance to manage
and foster interdependence
• EU strongest example
• Growing number of PTAs
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Recent decades
• Growing dissatisfaction with globalisation and integration
• 1999 Battle of Seatle
• Eye-opener for economists
• Globalisation seen as one of the causes of latest crisis
• EU: growing indicators that citizens are questioning
further integration
• Rejection of Constitution of Europe
• Incapacity to deal with crisis
• Unease with apparent attempts to move towards fiscal union
• Sovereign debt crisis
• Public is becoming increasingly aware of negative effects /
adjustment costs of globalisation and integration
• Politicians listen to the voters
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June 23rd, 2016
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Economy response
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Negotiations are not running smoothly
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Options for the UK
• Leaving EU will lower welfare
• Join the European Economic Area (Norway, Iceland,
Liechtenstein)
• Means staying in the EU’s Single Market
• Problem: all the rules will still apply; free flow of goods, services, capital &
labour
• Negotiate a free trade agreement with EU
• Unlikely that this will be done by end of 2018
• Temporary agreement may be possible solution
• This will also determine how UK can negotiate with other countries
• So even Customs Union would not be feasible if UK wants to be independent
• Trade with EU under WTO terms
• Might be starting position
• The UK will start negotiating FTAs with other countries, so EU will also be
part of this process
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Estimations of the loss of welfare
• Taken from HM Treasury analysis
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Impact on EU
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Who voted for Brexit?
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Factors favouring leave vote
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Education
Age
Economic situation, individual and regional
Social values
Opinions on immigration
Important observation
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Not entirely convincing though
Two possible explanations
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What do people think about globalisation,
trade and EU?
• Pew Research Center (http://www.pewresearch.org/)
• Annual surveys, for a lot of countries world wide
• Survey 2014
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Impact of trade on wages
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Impact trade on job creation
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Impact trade on prices
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Opinions on EU
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Opinions on EU
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More powers to the EU?
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EU good for prosperity?
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EU democratic system?
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Empirical evidence
• Winners and losers of globalisation in Europe
• Teney et al. (2014)
• Main idea of the paper
• A new conflict is developing within the EU, based on
people’s opinion on globalisation and economic
integration
• Traditionally, socio-demographic variables are used to
explain how people feel about trade and globalisation
• This paper adds people’s assessment of these issues as
additional explanatory force
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Interesting interpretation of what is happening
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Research questions
• Are citizens that feel deprived more against EU
integration?
• Citizens that see globalisation as an opportunity are more
in favour of EU integration
• Citizens that place an emphasis on (sub) national
identification are less likely to support the EU, citizens that
value supranational identification are more likely to
support Europan integration
• The effects do not differ between Western and Eastern
Europe
• Is the conflict between winners and losers more intense in
highly globalised countries?
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Data and variables (1)
• Eurobarometer survey 71.3 from 2009
• All 27 EU countries
• Subjective deprivation
• How would you judge the current financial situation of
your household (1-4; from good to bad)
• Evaluation of globalisation
• Globalisation is an opportunity for economic growth
• Globalisation increases social inequalities
• Globalisation represents a threat to employment and companies or
it represents a good opportunity for national companies
• Question whether someone is more linked to
(sub)national or international identity
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Data and variables (2)
• Socio-demographic variables
• Gender, age, education, internet use, size of place of
residence, immigrant origin
• Socio-economic status
• Variety of types of employment, student, unemployed
• Add variable to identify CEE countries
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Dependent variable
• Meaning of the EU
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Dependent variable
• 4 Dimensions
• Cosmopolitan: positive aspects of EU related to
democracy, peace, cultural diversity, freedom to travel,
etc.
• Utilitarian: Positive aspects of EU; focus on material
advantages
• Libertarian: Negative aspects of EU related to
bureaucracy, waste of money, etc.
• Communitarian: Unemployment, crime, loss of cultural
identity
• Dep variables: how many of these does a respondent
mention out of total items mentioned
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Mean values
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Empirical findings
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Main messages (1)
• Trade, globalisation and economic integration have
developed tremendously
• We need to keep this in mind when analysing their
importance and effects
• Also when we want to change, we need to know the
context and developmens
• Take care when seeing popular opinions against trade and
liberalisation
• There is a lot of confusion
• Debates are heated and emotional
• All kinds of things are linked to trade and globalisation
• Trade is good for welfare
• Trade and growth: positive relationship, exact size more
difficult to identify
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Main messages (2)
• Criticism and negativity has increased substantially in
the last decade
• WTO process has seriously stagnated
• Big gains have been made in the past
• Countries find it more difficult to agree on behind the border
liberalisation (deep integration)
• Rapid increase of Regional Trade Agreements
• Strange combination of light integration with deep integration
• Content of agreements does affect trade
• Maybe WTO can reinvent itself as organiser of these developments
• Linkages between RTAs and growing governance
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Main messages (3)
• EU project is stagnating
• Up until creation EMU solid process
• External causes: financial crisis, sovereign debt crisis
• Internal causes: “old-fashioned” view on integration (fiscal union)
• Clear dissatisfaction amongs citizens
• Brexit latest sign
• How to proceed?
• Multiple-Speed Europe?
• New forms of integration
• Allow for diversity?
• Increased understanding of endogeneity of
government policies
• Growing recognition that the opinion of citizens influences policy
choices; biased against trade liberalistion
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Main messages (4)
Which aspects will play key roles in these processes?
• Position of US in global trade
• How will EU develop?
• Position of China
• Between and within country inequality
• Tradability of jobs / tasks
• Increased international competition, also for high-skilled jos
• Will the international community find (new) ways to
improve the governance of international processes of
trade and globalisation?
• The opinion of citizens will play a more important role
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