Modelling impacts of free trade agreements on the Scottish economy

Footnote

1 Using specific assumptions around potential changes in trade costs informed by gravity modelling. Other studies may produce different results using different assumptions.

2 Trade: our vision - gov.scot (www.gov.scot)

3 New Government drives forward trade talks to turbocharge economic growth - GOV.UK (www.gov.uk)

4 Impact assessment of the Free Trade Agreement between the United Kingdom of Great Britain and Northern Ireland and Australia (publishing.service.gov.uk)

5 UK-India Free Trade Agreement - The UK's Strategic Approach (publishing.service.gov.uk)

6 UK - Türkiye Free Trade Agreement (publishing.service.gov.uk)

7 UK's approach to negotiating an enhanced free trade agreement with Switzerland - GOV.UK (www.gov.uk)

8 Trade: our vision - gov.scot (www.gov.scot)

9 In part, addressing the recommendations made by the trade modelling feasibility study commissioned by the Scottish Government in 2019. See Feasibility Study on Developing Trade Modelling for Scotland | FAI (fraserofallander.org)

10 See Annex B and D for a more detailed overview of both models.

11 For example, a CGE model incorporates input–output linkages between firms operating in different industries, as firms will be sourcing intermediate inputs from other industries.

12 Office of the Chief Economic Adviser at the Scottish Government is grateful to Angelos Theodorakopoulos (Aston Business School), who as part of the UKRI Policy Fellow programme, reviewed the Scottish Government’s gravity model and provided helpful comments and suggestions.

13 Cash impacts based on applying the percentage impact to Exports Performance Monitor figures for total Scottish exports to partner countries, 2021 data. This provides an illustration of potential monetary impact, but it is not a projection or forecast of future trade changes.

14 Cash impacts based on applying the percentage impact to Exports Performance Monitor figures for total Scottish exports to partner countries, 2021 data. This provides an illustration of potential monetary impact, but it is not a projection or forecast of future trade changes.

15 Summary Report: Analysis on the Impact of Future UK FTA Scenarios on Scotland’s Agricultural Food and Drink Sector

16 Borchert, I., Larch, M., Shikher, S., and Yotov, Y. (2022), “The International Trade and Production Database for Estimation - Release 2 (ITPD-E-R02),” USITC Working Paper 2022–07–A. Also: Borchert, I., Larch, M., Shikher, S., and Yotov, Y. (2021), “The International Trade and Production Database for Estimation (ITPD-E),” International Economics, 166, 140–166.

17 We calculate cash-terms impacts by using United Nations data for UK production (FAOSTAT for agricultural production and INDSTAT for food and drink production). We use 2022 data as this is the most recent available. For bakery products, there was no data available on INDSTAT, so we have used ITPD-E 2018 data instead.

18 Summary Report: Analysis on the Impact of Future UK FTA Scenarios on Scotland’s Agricultural Food and Drink Sector

19 Impact assessment of the Free Trade Agreement between the United Kingdom and Australia

20 Exiting the European Union: Publications - GOV.UK (www.gov.uk)

21 Revisiting the Effect of Brexit - NIESR

22 Scotland's place in Europe: people, jobs and investment - gov.scot (www.gov.scot)

23 See for example Estimating the trade and welfare effects of Brexit: A panel data structural gravity model - Oberhofer - 2021 - Canadian Journal of Economics/Revue canadienne d'économique - Wiley Online Library

24 Borchert et al 2020. Disaggregated Gravity: Benchmark estimates and stylized facts from a new database

25 See for example Scottish Sectoral Economic Impact Analysis (www.gov.scot) or Modelling the long-term impact of Brexit on the Scottish economy | FAI (fraserofallander.org)

26 See EU Exit: Long-term economic analysis

27 Using specific assumptions around potential changes in trade costs informed by gravity modelling. Other studies may produce different results using different assumptions.

28 Note that this refers to the changes in trade when accounting for the impact of the TCA as reported in Table 4 (non-EU partner results are qualitatively similar to Table 3).

29 Or by 27% when removing the impact of TCA – see Table 3.

30 Borchert, I., Larch, M., Shikher, S., and Yotov, Y. (2022), “The International Trade and Production Database for Estimation - Release 2 (ITPD-E-02),” USITC Working Paper 2022–07–A. Also: Borchert, I., Larch, M., Shikher, S., and Yotov, Y. (2021), “The International Trade and Production Database for Estimation (ITPD-E),” International Economics, 166, 140–166.

31 Specifically, we use the function feglm from the R package fixest.

32 Baier, Scott L., Yoto V. Yotov, and Thomas Zylkin. "On the widely differing effects of free trade agreements: Lessons from twenty years of trade integration". Journal of International Economics 116 (2019): 206-226.

33 Tariff-based product-level trade elasticities - ScienceDirect