Project

Brexit and its Economic Consequences for the German State of Hesse

Client: Frankfurt am Main Chamber of Commerce and Industry
Project period: March 2018 - April 2018
Research Areas:
Project team: Prof. Dr. Gabriel J. Felbermayr, Dr. Robert Lehmann, Marina Steininger

Tasks

In the course of Brexit, Germany’s real GDP will fall compared to the current status quo. The average effect for Germany as a whole, however, masks significant heterogeneities between different sub-national entities such as the German states. One of several reasons for these heterogeneous effects are sectoral differences across regions. The German state of Hesse faces a special situation, as vast swathes of the German financial sector are located in Frankfurt am Main. This project aims to calculate the medium and long-term implications of Brexit for the economic and employment development of the German state of Hesse. Additionally, the project will also highlight both sectoral and regional differences.

Methodology

The quantitative effects for the German state of Hesse will be calculated based on the ifo Trade Model, which has been developed by the ifo Center for International Economics in recent years. The model is based on New Quantitative Trade Theory Models (NQTT-Ms) and is a modern CGE (Computational General Equilibrium) model. It will be newly calibrated with economic data for Hesse in order to quantify the state-specific effects.

Data and other Sources

Trade data (German Federal Statistical Office)
Regional Accounts (Working Group Regional Accounts)
Employment data (German Federal Employment Agency)

Results

The German state of Hessen and the metropolitan region of Frankfurt-Rhine-Main should be less heavily impacted by Britain’s exit from the European Union than Germany as a whole. In the case of a “hard Brexit”, Hessen’s price-adjusted gross domestic product (GDP) will be -0.17% lower than in the base scenario (versus Germany: -0.23%). The effects on the metropolitan region will be similar to that on Hessen as a whole. If, on the other hand, a more ambitious free trade agreement were to be reached (“soft Brexit”), the effects on Hessen and its metropolitan region would be -0.08% compared to the baseline (Germany: -0.10%).

Hessen stands to be less strongly affected than Germany as a whole thanks to structural economic differences in Hessen’s economy. There are two main reasons for this: firstly, the branch that stands to be the most strongly affected by Brexit, namely manufacturing, accounts for a smaller share of added value in Hessen than in Germany as a whole. Secondly, financial, insurance and corporate services provides are traditionally more present in Hessen than in Germany on average, since Frankfurt lies at the heart of the German financial sector. These are the three economic sectors that may even stand to gain from Brexit. Both of these major differences mean that Brexit will have less of an impact on Hessen’s economy.

Project Publications

There are plans to publish the expert report as an ifo research report and to publish a summary of the key findings in ifo Schnelldienst.

Contact
CV Foto, Robert Lehmann, ifo Institut

Dr. Robert Lehmann

Economist
Tel
+49(0)89/9224-1652
Fax
+49(0)89/985369
Mail