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Foreign multinationals in service sectors: A general equilibrium analysis of Brexit
Author(s) -
Latorre María C.,
Olekseyuk Zoryana,
Yonezawa Hidemichi
Publication year - 2020
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.13034
Subject(s) - brexit , context (archaeology) , international economics , general equilibrium theory , economics , tariff , trade in services , service (business) , international trade , welfare , european union , foreign direct investment , trade barrier , business , economy , market economy , macroeconomics , paleontology , biology
We examine the role of foreign multinationals in service sectors in the context of Brexit, which is assumed to induce an increase in different types of barriers: (a) FDI barriers to multinationals in services; (b) non‐tariff barriers to trade; and (c) import tariffs between the UK and the rest of the EU. We use a state‐of‐the‐art Melitz approach in manufactures with multinationals operating in imperfectly competitive service sectors in a multiregional general equilibrium framework. We find that the increased FDI barriers in services explain about one third of the total welfare loss of Brexit. Furthermore, our decomposition analysis (by introducing each type of barriers separately) shows that the barriers against the EU service multinationals in the UK are harmful to British manufacturing sectors because they face a reduced (and more expensive) supply of intermediate services.