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The Impact of Potential Brexit Scenarios on German Car Exports to the UK: An Application of the Gravity Model

Journal article
Authors Jacqueline Karlsson
Helena Melin
Kevin Cullinane
Published in Journal of Shipping and Trade
Volume 3
Issue 12
Pages 1-22
ISSN 2364-4575
Publication year 2018
Published at Department of Business Administration
Department of Business Administration, Industrial and Financial Management & Logistics
Pages 1-22
Language en
Links https://doi.org/10.1186/s41072-018-...
Keywords Automotive industry, cars, brexit, gravity model, trade, forecasts.
Subject categories Transport Systems and Logistics, Business Administration, Economics, Economics and Business

Abstract

The objective is to forecast the impact of potential Brexit scenarios on the export volume of passenger cars from Germany to the UK. Based on Germany’s total export volume of passenger cars, a double-logarithmic gravity model is specified and estimated using Ordinary Least Squares (OLS) regression. The final estimated model has strong explanatory power, with all variables significant at the 5% level. This is used for forecasting future export volumes under different Brexit scenarios. Diagnostic tests suggest that the model is robust and efficient. All tested Brexit scenarios are found to negatively impact passenger cars export volumes from Germany to the UK. The level of tariffs is found to have the most significant effect, but lower GDP due to Brexit is forecast to offset the benefits of trading with lower tariffs. The most pessimistic scenario for 2030 forecasts is a reduction of 15.4% compared to the ‘no Brexit’ base-case scenario.

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