In this paper we provide quantitative insights into the economic
impact of Brexit on European countries and regions. More specif-
ically, we evaluate the impact of a soft and a hard Brexit on pro-
ductivity, markups, product variety, welfare and the distribution of
population across European countries and regions. We employ a
model characterized by costly trade, love of variety, heterogeneous
firms, labour mobility as well as endogenous markups and produc-
tivity. We quantify the model using goods and services trade data
as well as GDP and population for EEA countries/regions plus BRIC
countries and other OECD countries. We finally compute, starting
from the observed initial situation in the year 2016, counterfactual
economic changes stemming from changes in trade costs related to
the implementation of both a soft and a hard Brexit. We find that
Brexit would have a significant impact on the UK and EU economies.
A hard Brexit could lead to annual welfare losses of 57 billion euros
in the UK and about 40 billion euros in other EU countries. A soft
Brexit would strongly mitigate these losses. Productivity losses and
markup increases drive the simulated effects
