A Gravity Equation analysis of trade integration between Great Britain and the EU

Gravity equations are a staple of international trade analysis and gave rise to a huge literature from the 60’s until now. We use this tool in order to analyse the trade integration of Great Britain with the European Union, employing a dataset taken from the UN Comtrade database, both aggregated and at industry level. The topic is of crucial interest since the vote on ‘Brexit’, triggered a long process whose aftermath will see Britain leaving the Union and its Single Market. There is a lot of uncertainty surrounding this unprecedented event, from how much it will take to what kind of future relations will be set up. We choose to identify which are the most vulnerable sectors of British trade, basing on the identified level of integration and the tariffs currently applied by the EU under the WTO trade regime: a scenario that could take place if the two economies will not manage to establish new trade agreements. We also included a comparison with the other two largest world economies, the USA and China, to better evaluate trade integration with the EU. The results shows, as expected, a very high degree of integration of Great Britain with the EU meaning the economic shock would be high. This is especially crucial in some sectors of trade as automotive industry, on the other side it should be less painful in some other like the pharmaceutical industry.