BREXIT: THE TRADE EXPOSURES OF SECTORS OF THE IRISH ECONOMY IN A EUROPEAN CONTEXTMike Fahy, Donal Smith, Gavin Murphy, and Brendan O’Connor
Economics Division WORK-IN-PROGRESS
08th June 2017
This document is part of ongoing Brexit analysis and scenario planning for inputinto larger Government deliberative processes. Unless explicitly referenced byGovernment decision, any proposal contained in this document does notrepresent Government policy and should not be represented as such.
The analysis and views set out in this paper are those of the authors only and donot necessarily reflect the views of the Department of Finance or the Ministerfor Finance.
The authors are economists in the Department of Finance and members of theIrish Government Economic and Evaluation Service (“IGEES”).
Disclaimer
2
This presentation on “Brexit: Trade Exposures of Sectors of the IrishEconomy in a European Context” builds on the Department of FinanceBudget 2017 paper entitled “UK EU Exit – An Exposure Analysis of Sectorsof the Irish Economy” by:
i. Examining cross country sectoral trade exposures of sectors of the Irisheconomy and other EU member states to the United Kingdom (UK) in light ofthe UK’s decision to exit the European Union (EU).
ii. Computing the revealed comparative advantage (“RCA”) for a numberof sectors in Ireland and the UK, and
iii. Extending the sectoral and RCA frameworks by computing a newmetric to score cross country sectoral comparative proportionalexposures to the UK (i.e. a new “CPE index”) .
Introduction
3
4
Trade Exposure Methodology
1. Trade Exposure
Size Exposure:𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 𝐺𝑜𝑜𝑑𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑇𝑜𝑡𝑎𝑙 𝐺𝑜𝑜𝑑𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
Proportional Exposure:𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 𝐺𝑜𝑜𝑑𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑐𝑡𝑜𝑟 𝐸𝑥𝑝𝑜𝑟𝑡𝑠
2. Exposure Index
0.5𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 Goods 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑇𝑜𝑡𝑎𝑙 𝐺𝑜𝑜𝑑𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾+ 0.5(
𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 Goods 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑇𝑜𝑡𝑎𝑙 𝑆𝑒𝑐𝑡𝑜𝑟 𝐸𝑥𝑝𝑜𝑟𝑡𝑠)
Size Exposure Proportional Exposure
Goods & Services Export Exposures
Food and Live Animals
Beverages/Tobacco
Crude Materials
Minerals
Agricultural Residuals
Chemicals
Manufactured Goods
Machinery
Misc. Manufactured
Commodities n.e.s
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0% 5% 10% 15% 20% 25% 30% 35%
Pro
po
rtio
nal
Exp
osu
re
Size Exposure
Irish Goods Exports Exposures to UK, 2015
5
0.0
0.1
0.2
0.3
0.4
0.5
Exp
osu
re In
dex
Goods (Brown) and Services (Blue) Sectors in 2015
Exposure Index
0.5𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑇𝑜𝑡𝑎𝑙 𝐺𝑜𝑜𝑑𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾+ 0.5(
𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑜 𝑡ℎ𝑒 𝑈𝐾
𝑆𝑒𝑐𝑡𝑜𝑟′𝑠 𝑇𝑜𝑡𝑎𝑙 𝐸𝑥𝑝𝑜𝑟𝑡𝑠)
Size Exposure Proportional Exposure
6
Comparative Advantage Methodology
3. Revealed Comparative Advantage of sectors
=
4. Comparative Proportional Exposure of sectors
=
Sector’s Exports / Country’s Exports
Global Sector Exports / Global Exports
Irish Sector’s Exports to UK / Irish Sectors Total Exports
Global Sector Exports to UK / Global Sector Exports
i XX
XX
X
X
RCA
i
i
jj
i
j
j
i
j
i
j
i
i
j
i
j
i
j
i XX
XX
X
X
CPE
uki
jk
ki
j
j
UKi
j
UKi
j
k
ki
j
UKi
j
UKi
j
,,
,,
,
,
,
e.g. a positive RCA for Ireland in Food sector implies that the food share in Ireland’s total exports is greater than the world average
e.g. a positive CPE for Ireland in Food implies that Ireland’s proportional exposure to UK in food is greater than that of the world average
7
EU Countries Goods Export Exposures to the UK
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
FranceGermany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
LuxembourgMalta
Netherlands
Poland
Portugal
Romania
Slovakia
SloveniaSpain
Sweden
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0 0.1 0.2 0.3 0.4 0.5 0.6
Pro
po
rtio
nal
Exp
osu
re
Size Exposure
Food and Live Animals, 2015
Austria
Belgium
Bulgaria
CroatiaCyprus
Czech Republic
Denmark
Estonia
Finland
FranceGermany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
MaltaNetherlands
Poland
Portugal
RomaniaSlovakia
Slovenia
Spain
Sweden
0
0.05
0.1
0.15
0.2
0.25
0.3
0 0.01 0.02 0.03 0.04 0.05 0.06P
rop
ort
ion
al E
xpo
sure
Size Exposure
Beverages and Tobacco, 2015
8
EU Countries Meat, Dairy & Eggs Export Exposures to the UK
Austria
BelgiumBulgaria
Croatia
CyprusCzech
Republic
Denmark
EstoniaFinland
France
Germany
GreeceHungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
SpainSweden
0
0.1
0.2
0.3
0.4
0.5
0.6
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14
Pro
po
rtio
nal
Exp
osu
re
Size Exposure
Meat and Meat Preparations Exposure to the UK, 2015
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Finland
FranceGermany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherlands
Poland
PortugalRomania
SlovakiaSlovenia
Spain
Sweden
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0 0.1 0.2 0.3 0.4P
rop
ort
ion
al E
xpo
sure
Size Exposure
Dairy Products and Birds' Eggs Exposure to the UK, 2015
9
EU Countries Goods Export Exposures to the UK
Austria
BelgiumBulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
FranceGermany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
RomaniaSlovakia Slovenia
SpainSweden
0
0.1
0.2
0.3
0.4
0.5
0.6
0 0.1 0.2 0.3 0.4 0.5
Pro
po
rtio
nal
Exp
osu
re
Size Exposure
Manufactured Goods, 2015
Austria
Belgium
Bulgaria
CroatiaCyprus
Czech Republic
Denmark
Estonia
Finland
France
GermanyGreece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
SpainSweden
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0 0.1 0.2 0.3 0.4 0.5
Pro
po
rtio
nal
Exp
osu
re
Size Exposure
Chemicals and related products, n.e.s., 2015
10
Ireland’s Sectoral Proportional Exposure to UK, 2000 vs 2015
0
0.1
0.2
0.3
0.4
0.5
0.6
Food and LiveAnimals
Chemicals Machinery Misc. Manufacturing Manufactured Goods Crude MaterialsManufactured
Beverages andTobacco
Pro
po
rtio
nal
Exp
osu
re
Proportional Exposure to UK, 2000 Proportional Exposure to UK, 2015
11
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5
Ireland:Cereals and cereal preparations
Ireland:Vegetables and fruits
Ireland:Live animals other than animals of division 03
Cyprus:Dairy products and birds' eggs
Ireland:Feedstuff for animals (excluding unmilled cereals)
Ireland:Coffee, tea, cocoa, spices, and manufactures thereof
Ireland:Meat and meat preparations
Cyprus:Sugar, sugar preparations and honey
Ireland:Dairy products and birds' eggs
Cyprus:Coffee, tea, cocoa, spices, and manufactures thereof
Ireland:Sugar, sugar preparations and honey
Cyprus:Vegetables and fruits
Denmark:Miscellaneous edible products and preparations
Malta:Cereals and cereal preparations
Greece:Dairy products and birds' eggs
Denmark:Meat and meat preparations
Spain:Vegetables and fruits
Greece:Vegetables and fruits
Netherlands:Meat and meat preparations
Poland:Meat and meat preparations
Romania:Meat and meat preparations
Netherlands:Vegetables and fruits
Poland:Coffee, tea, cocoa, spices, and manufactures thereof
Ireland:Miscellaneous edible products and preparations
Lithuania:Feedstuff for animals (excluding unmilled cereals)
Cyprus:Cereals and cereal preparations
France:Coffee, tea, cocoa, spices, and manufactures thereof
Denmark:Dairy products and birds' eggs
Czech Republic:Sugar, sugar preparations and honey
Sweden:Fish, crustaceans, molluscs and preparations thereof
Exposure Index to UK by Product and Country (2 digit SITC) 2015
Top 30 most Exposed Products to the UK, by Country in 2015
8 of the EU’s Top 12 most exposed products to UK are
Irish exports
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Ireland and the UK's RCA by Product Group, 2000 & 2015
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
Food and live animals
Beverages and tobacco
Crude materials, inedible, except fuels
Chemicals and related products, n.e.s.
Manufactured goods
Machinery and transport equipment
Miscellaneous manufactured articles
RCA_UK 2015 RCA_UK 2000 RCA_Ire 2015 RCA_Ire 2000
13
Comparative Proportional Exposure
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
Food and Live Animals Comparative Proportional Exposure to the UK, 2015
14
UK’s Revealed Comparative Advantage vs Comparative Proportional Exposure Index of Irish Sectors
Food and live animals
Beverages and tobacco
Crude materials, inedible, except fuels
Mineral fuels, lubricants and related materials
Agricultural Residuals
Chemicals and related products, n.e.s.
Manufactured goods
Machinery and transport equipment
Miscellaneous manufactured articles
Commodities and transactions, n.e.s.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
Co
mp
arat
ive
Pro
po
rtio
nal
Exp
osu
re
Ind
ex o
f Ir
ish
Sec
tors
to
UK
Revealed Comparative Advantage/Disadvantage of the UK by Sector
Irish sectors most exposed to UK third country trade deals
15
Ireland and the UK's RCA by Services sectors, 2015
-1 -0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 1
Charges for the use of intellectual property n.i.e.
Construction
Financial services
Goods-related services
Government goods and services n.i.e.
Insurance and pension services
Other business services
Personal, cultural, and recreational services
Telecommunications, computer, and information services
Transport
Travel
UK's RCA 2015 Ireland's RCA 2015
The results show that Ireland is a substantial outlier in a number of sectors interms of the level of its trade exposure, particularly in agri-food.
In particular the results show that Ireland’s comparative advantage isconcentrated in the pharma-chem and agri-food sectors.
Lastly, an analysis of the UK’s RCA indicates those sectors where the UK may seekalternative sources of imports from third countries post-Brexit.
Comparisons of these sectors with Ireland’s sectoral exposures to the UK indicates
where potential vulnerabilities may occur if the UK were to agree trade agreements
with third countries.
Summary
16
Continue to work on services sectors
Intention to publish as Department of Finance working paper
Next Steps
17
Thanks
-Any Questions ?
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