Modelling impacts of free trade agreements on the Scottish economy

Conclusion

This report carries out modelling of four non-EU FTAs and the UK–EU TCA, employing two modelling methodologies (Computable General Equilibrium and Gravity) in parallel, to estimate the long-run impacts on the Scottish economy.

Introducing new trade agreements with Australia, India, Switzerland, and Türkiye represents a reduction in trade costs and is estimated to increase in trade with these partners. The UK–EU TCA represents an increase in trade costs and is estimated to decrease the level of trade and economic activity in the Scottish economy.

When the impacts of the non-EU FTAs and the UK–EU TCA are considered together, the generally negative effect of the TCA is estimated to significantly outweigh the small positive impact of the new FTAs.

This analysis has shown that different sectors can be affected differently by trade agreements. This can mean that different groups of people might be affected differently. The exploratory analysis included in this report shows how the impacts could differ by gender and by region of Scotland.

This analysis indicates that sectors with a larger proportion of female workers may see lower gains in employment resulting from the non-EU FTAs than sectors with a large proportion of male workers. Conversely, industries with a large proportion of male workers may experience a greater adverse effect of the UK–EU TCA.

We find some regional variation, but not of sufficient magnitude to complicate the national picture: all regions experience an increase in employment under the non-EU FTAs and all regions experience a decrease in employment when the TCA is included. The main standout result is the North East of Scotland which experiences the biggest impact in both scenarios, with employment increasing by around 0.23% under the non-EU FTAs, and decreasing by around 1.5% when the TCA is included.

Overall, the findings of this report show that UK trade policy, such as signing new FTAs or implementing the TCA, can have important implications for the Scottish economy. These findings reinforce the generally accepted picture that reducing barriers to trade can lead to greater economic prosperity and increasing barriers can harm the economy, while also highlighting that all sectors and participants in the economy are unlikely to be affected equally. This report forms part of an evidence base to understand the impacts of trade policy changes in Scotland and supports objectives set out in the Scottish Government’s Vision for Trade.