Quantifying the Impact of Potential Brexit Scenarios Utilising a Double-Logarithmic Gravity Equation
Sammanfattning: Purpose. The purpose of this research report was to project if the Brexit wouldnegatively impact the export quantities of passenger cars from Germany to the UK.The automotive industry is highly interconnected and barriers could severely impactthe supply chain networks of automotive manufacturers. The topic was of particularinterest due to the estimated implications of the Brexit and the substantial passengercar quantities that Germany exports.Methodology. The authors studied the current market structure through the use of adouble-logarithmic gravity equation. The gravity model provided the foundation for aquantitative forecasting model which projected future trade quantities under differentBrexit scenarios. The model was based on a sample representing 98 per cent ofGermany’s total export quantity of passenger cars. Diagnostic tests suggest that themodel was robust and efficient in estimating trade quantities.Findings. All Brexit scenarios were estimated to negatively impact the exportquantities of passenger cars from Germany to the UK. Lower tariffs were projected tobenefit export quantities of passenger cars from Germany, nevertheless, a weakereconomy in the UK due to the Brexit is estimated to reduce demand for passengercars and offset the benefits of trading with low tariffs. The most pessimistic scenarioin 2030 forecasts a reduction of 15,4 per cent in exported cars compared to a scenarioin the absence of the Brexit.Originality. By being the first to project the impact of the Brexit on German exportquantities of passenger cars, the results provide valuable insights for automakers aswell as supply chain planners and other professionals.Research limitations. The authors have narrowed their focus to the export ofcomplete cars and do not take into account interactions between countries andindustries before or after complete cars are exported.
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