“The economic impact on the UK of leaving the European Union” Essay Example

Economic Impacts of the UK exiting the EU

Executive Summary

The UK as a nation has raised concerns on the manner in which the EU operates, arguing that the union does not act to the best interest of all the members. Consequently, the nation launched a charm offensive approach to influence members to change the EU charter to its advantage. However, the nation has posed the challenges that failure to change would result to its withdrawal, with even a national referendum scheduled for 2017. The analysis indicates that the exit has the poetical for raising both positive and negative implications. On one hand, the negative implications include an exit of FDIs and losing ground on the EU market. However, on a positive note, the nation will gain through its independence to form trade agreements and partnerships globally, as well as by acquiring a free trade agreement exit agreement.

Table of Contents

2Executive Summary

41.0 Introduction

42.0 Discussion

42.1 Potential Negative Impacts

42.1.1 Risk of FDIs Withdrawal

52.1.2 Lack of EU members Market Access

62.2 Potential Positive Impacts

73.0 Conclusion

7References

1.0 Introduction

The EU has been a major political, social, and economic pillar and union for the EU countries. In this case, its core formation motivation was the need to develop a strong economic bloc for the region. Consequently, the economic bloc was expected to allow for increased economies of scale and the eventual market success in the long run period. Although the EU as an economic union has achieved a lot, it has over the years faced challenges. As a result, nations have developed cold feet on their membership in the union, due to the perceived interference with their internal domestic affairs. Once such a nation is the UK that is due to hold a national referendum in 2017 to decide whether to remain or withdraw from the EU (BBC News, 2015). Although the prime minister has committed to championing for reforms in the EU and subsequently campaigning to retain UK membership, the perceived reluctance to change in the EU has created the likelihood that indeed the UK might withdraw from the union. This has been commonly known as Brexit. This report offers a critical analysis of the potential economic impacts on the UK in the event that it exits the EU upon the 2017 national referendum.

2.0 Discussion

The imminent withdrawal of the UK form the UK has been faced with mixed reactions by different quarters of economists. As such, while as some forecast an economic market failure; others predict the possibility of economic growth and gains in the long run period. This section reviews the perceived both positive and negative economic gains. However, it is imperative to note that the UK will be the first such a nation to withdraw from the Union. Therefore, the lacks a precedence through which to base the economic analysis on and thus, all the preferred economic forecast and reviews are basically forecasts and speculations respectively.

2.1 Potential Negative Impacts

A number of institutions and economic analysts’ have warned of the potential economic negative consequences in the UK.

2.1.1 Risk of FDIs Withdrawal

One of the key potential challenges is the loss of FDIs attractiveness. In this case the economists argue that the UK serves as an attractive FDI platform due to its participation in the EU. In this case, the analysis assess that the key rationale for the formation of the EU was to create shared and common economic zones across the EU countries. As such, FDI investors in the region find it easy to transact operation across the EU as the member countries have shared regulations’ and business operational systems. In this regard, Minford and Gupta, (2015, p.27) noted that through the EU, the member countries acquired a reduced market regulation base, allowing for the ease of doing business and establishing FDIs across the region. One of the nations that benefitted the most through the FDIs is the UK. Due its influence in the region and the associated economic development infrastructure, this allowed the nation to attract a large number of investors into the region. The resulting factor and impact of FDIs in a nation is mainly two fold. First, the FDIs create increased market value and opportunities for the nationals.

As such, this has played a significant role in enhancing the reduction of unemployment in the nation, especially caused by the 2008 global financial crisis (Sorhun, Haciogglu and Dinçer, 2015, p.43) To this end, analysts argue that the EU membership of the nation has earned the UK over 3 million jobs that are directly related to its membership. The second economic impact of FDIs in a nation is increased GDP value. As such, this indicates that a nation GDP value, which is the main indicator of economic development is directly related and linked to investments in the market both domestic and international based.

On one hand, it is estimated that of the UK withdraws from the EU, the FDIs in the market will reduce. This is because, products manufactured and produced n the UK ill have to face tariffs and taxes prior to gaining access to the other EU member countries. As a result, this would increase the overall production costs, reducing the FDIs profitability rates. Consequently, this is likely to motivate the FDIs to relocate their business ventures to other neighbouring nations with an EU membership. As evidence to these risks, already a number of multinational FDIs have demonstrated their willingness to relocate from the UK market, In the event that it withdraws its membership of the EU (Centre for European Reform, 2014). The withdrawal of such FDIs has the lasting impact of creating an employment. Once the organisations withdraw their operations in the UK, the already employed UK employees will be rendered jobless, crating the risk of the rise of unemployment rates in the market into the future. Moreover, their withdrawal will reduce the overall GDP value in the UK, reducing and eventually slowing down its economic growth rates.

2.1.2 Lack of EU members Market Access

The second economic challenge that the UK is likely to face is being locked out of the other EU members market in the future. An economic analysis of the UK as a nation illustrates that it mainly thrives through importation and exportation. Consequently, besides the Asian market and India, the EU market forms an additional key trading partner for the UK. However, this market could be lost in the event that the nation withdraws from the EU. Under the EU exit rules, in the event that a member nation is willing to withdraw, a commission formed that evaluates and dictates the terms in which such a member exits the union (Pawel et al, 2013).

As such, the remaining members have the liberty and the mandate to formulate the exit terms. One of the most feared outcomes of the process is the exit of the UK from the union without a free trade agreement with the EU. This means that upon the exit, the UK market will have no access to the EU member markets, unless it negotiates for individual nations agreements, that often are curbed with high tariffs. Therefore, this means that the ability for the UK market to interact and trade with the EU market will be substantially reduced, risking a drop in its economic growth rates. The above analysis illustrates that, in terms of conducting business with other EU members, the UK as an economic entity is better off as an EU member than when it stands as a single autonomous entity, discussing and negotiating bilateral trade agreements with each EU member country.

2.2 Potential Positive Impacts

Although as evidenced above, the nation faces the risk of a wide range of negative economic implications, there are still a number of potential positive economic impacts for the UK if it exits the EU membership. One of the floated gains is the acquisition of independent status of the entity to negotiate trade terms with members outside the EU as well as the acquisition of an EU free trade agreement. The proponents of an exit strategy argue that it is possible for the UK to exit the EU with a free trade agreement. This means that the current free movement of the factors of production between the UK and the EU markets will be retained. As such, this will propel against the FDIs leaving the nation as well as encouraging the retention of jobs in the market. An added merit to this exit will be the attainment of independence status to liaise and formulate additional trade agreements. Currently, the EU restricts its members into forming additional trade agreements and instead, they make such agreements as a union rather than member States (Katie et al, 2013).

As a result, this has the potential of not ensuring and guaranteeing the individual nations States interest is factored in. This is because the union not only focuses on the interests of a few members states, but also evaluates of such agreements could negatively impact on other union members. If that is the case, then such trade agreements are not ratified, denying the interested members a key development opportunity. Therefore, through exiting the EU, he UK will be at liberty to sign and negotiate all the trade agreements that favour its operations and well being, without consideration the impact of such agreements on different nations. Therefore, this will serve as a strategic tool and measure through which the UK will advance its own economic agenda, enhancing its chances of developing and emerging as a global economic power house

3.0 Conclusion

The report offers a strategic analysis of the economic impact of the UK exiting the EU. In this case, the report analysis is based on the understanding that the UK as a nation will hold a national referendum in 2017 to vote on whether to remain or withdraw from the EU. In this case, due to the fact that no other nation has withdrawn in the past, there is a mixed approach on the potential gains and challenges for such a Britain exit. On one hand, the report established that the exit would lead to the withdrawal of FDIS, reducing employment and economic growth rates. Moreover, there is the risk of losing out on the existing EU market base. However, the report notes that the gained economic independence will enable the nation gain economic partners globally as well as access the EU market through an exit free trade agreement.

References

BBC News, 2015, A guide to the UK’s planned in-out EU referendum. [Online] Available at: <http://www.bbc.com/news/uk-politics-32810887> [Accessed: 15th January 2016].

Centre For European Reform, 2014, The Economic Consequences Of Leaving The EU [Online] Available at: < http://www.cer.org.uk/publications/archive/report/2014/economic-consequences-leaving-eu> [Accessed: 15th January 2016].

Katie A,
Philip O, Julian B and Arthur N., 2013, Brexit – what would happen if Britain left the EU, The Guardian. [Online] Available at: < http://www.theguardian.com/politics/2015/may/14/brexit-what-would-happen-if-britain-left-eu-european-union-referendum-uk > [Accessed: 15th January 2016].

Minford, P., & Gupta, S., 2015, Should Britain leave the EU?: An economic analysis of a troubled relationship, Edward Elgar Pub. Ltd, Cheltenham

Pawel S., Raoul R.,
Stephen B.,, Christopher H., & Mats P., 2013, What if…? The consequences, challenges and opportunities facing Britain outside the EU, Open Europe. [Online] Available at: < http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/> [Accessed: 15 January 2016].

Sorhun, E., In Hacioğlu, U., In Dinçer, H., 2015, Regional economic integration and the global financial system, Chocolate Avenue, Hershey, Publisher, Hershey, Pennsylvania (701 E)