Examining the effects of EU integration on the UK’s Trade Flows

Abstract

This thesis examines the UK's trade flows patterns as a means seeing whether wider integration with the EU and EU membership has affected the UK's trade sectors. This should serve as a means of understanding the implications of Brexit using data covering 50 partner countries from 1978 to 2018. It also analyses other factors that affect trade and their relationship to the UK's trade flows. Adopting a panel regression technique with a focus on correlated random effects model, the study finds a significant positive effect by which a percentage increase in the UK’s GDP, wider integration, EU membership and colonial ties raises the UK's overall trade flows by 59 percent, 21 percent, 25 percent and 111 percent, respectively. However, distance as a proxy for cost of trade was statistically significant and reduces the UK's overall trade, export and imports flows by 65 percent, 64 percent and 62 percent, respectively. This thesis observed that, that the UK benefited from economic integration with the EU, suggesting that Brexit disrupt the UK’s trade sector by having more limited access to the EU single market and its adverse effect on existing supply chains (those that were in place at the time of Brexit). Also, large distances reduce the UK’s trade flows and cost of trade with the EU is lower since the EU is closer to the UK than non-EU countries. As a result, this finding imply post-Brexit trade deal with the EU should be a top priority to the UK government to avoid decline trade value and trade infrastructures must be improved to reduce the effect of distance on trade flows if the UK’s priority is to target a trade deal with the US.