New Report on the Economic Consequences of Brexit for Ireland

November 05, 2015

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Competitiveness, Trade and FDI
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In the report Scoping the Possible Economic Implications of Brexit on Ireland, published today (Thursday, 5 November 2015), ESRI researchers explore the economic links between Ireland and the UK and scope out the possible economic consequences of Brexit for Ireland. The UK government is committed to holding a referendum on EU membership following negotiations between the UK and the EU on key issues of concern to the UK government. If the UK voted to leave the EU (Brexit), the resulting changed relationship between the UK and the EU could potentially have far-reaching consequences for Ireland. Given this, the ESRI is publishing today (Thursday, 5 November 2015) a major new study with the following aims:

  • to describe and quantify the key economic linkages which have developed over time between Ireland and the UK in the context of EU membership, and
  • arising from the above, to make an initial assessment of the risks and opportunities related to these economic linkages in the context a UK exit from the EU .

The analysis in the report is conducted across four areas - trade, foreign direct investment, energy and migration. Taken together the evidence provided by this analysis suggests that Ireland’s interests will be best served by the UK remaining within the EU. The detailed findings include the following: Trade

  • Estimates from the literature suggest that a Brexit could reduce bilateral trade flows between Ireland and the UK by 20 per cent or more.
  • While the 20 per cent estimate is an average figure, the impact would differ significantly across sectors, products and firm types as merchandise trade in particular is heavily concentrated in some sectors and products and indigenous firms are more dependent on the UK as an export market.
  • For merchandise trade in particular, trade is very concentrated in a few product types implying that increased trade barriers for these would have a more pronounced impact on trade volumes.
  • The UK is more important as a source of imports to Ireland than it is as a destination for Irish exports, and any barriers to trade would increase prices of UK imports to Ireland.
  • In relation to trade between Ireland and Northern the expected impact of Brexit is likely to be more significant for Northern Irish exporters to Ireland.

Foreign Direct Investment

  • The UK outside the EU would be less attractive to FDI because of its reduced access to the EU Single Market. Less FDI is likely to result in slower economic growth in the UK, which would impact negatively on Ireland’s economic growth.
  • While it might be thought that a reduction of FDI into the UK would result in an economic boost for Ireland through additional FDI projects relocating from the UK, the analysis in this report shows that the expected additional attractiveness of Ireland to new FDI projects is likely to be small.
  • This anticipated small effect arises in part from the fact that Ireland’s attractiveness to FDI is already high, relative to its economic size and geographical position in Europe.  The analysis suggests that larger EU member states, such as Germany, France, Italy, Spain and Poland, would benefit more from the redirection of new FDI away from the UK.

  Energy

  • An all-island electricity market has existed since 2007, and interconnection between Ireland and Northern Ireland is particularly important for Northern Ireland, which relies on electricity imports from Ireland to make up for insufficient local electricity generation capacity.
  • If the electricity market in Britain remains independent of the rest of the EU, interconnection with Britain only would leave Ireland vulnerable to any problems in the British market. Under these circumstances enhanced interconnection between Ireland and the rest of the EU could provide a useful but costly diversification, reducing risk for Irish consumers.
  • If the UK left the EU, it would no longer be subject to EU rules on climate change policy and renewables, which would reduce the chance that the UK would reopen discussions on trade in renewables.

  Migration

  • A UK exit from the EU opens up the possibility of restrictions on the free movement of people between Ireland and the UK for the purposes of work. As the UK remains an important destination for Irish emigrants especially at times of high unemployment, such restrictions could have implications for the Irish labour market.
  • More broadly, the imposition of passport controls at the border with Northern Ireland would be at best inconvenient and at worst a worryingly regressive step in terms of facilitating cooperation between both parts of the island.
  • A significant number of Irish born people are resident in the UK and likewise a substantial number of UK born people are resident in the Republic of Ireland. While many of these people will have passports which relate to their current residencies as opposed to their places of birth, many others could find themselves post-Brexit being resident in a country where their right to residency might come into question in the event of a Brexit.

Notes for Editors

  1. Scoping the Possible Economic Implications of Brexit on Ireland, by Alan Barrett, Adele Bergin, John FitzGerald, Derek Lambert, Daire McCoy, Edgar Morgenroth, Iulia Siedschlag and Zuzanna Studnicka (ESRI), will be published on the ESRI websiteon Thursday 5 November 2015. The embargo is until 00:01am Thursday 5 November 2015 
  2. A media briefing will be held at 10.30am on Wednesday 4 November 2015, in the ESRI, Whitaker Square, Sir John Rogerson's Quay, Dublin 2. Copies of the report will be available at  the briefing.
  3. The research was conducted under the joint Department of Finance and ESRI Research Programme on The Macro-economy and Taxation.