Discussions regarding the potential impacts of Brexit on the island of Ireland have tended to focus, not surprisingly, on social, political and security-related issues regarding the border between the Republic of Ireland and Northern Ireland.
As this report shows, how to manage customs-related issues on this border have recently become central to the whole question of the exact nature of the UK’s withdrawal from the EU.
While these social, political and security-related issues are of utmost importance, there are also other economic issues which Brexit raises for the island of Ireland. Until now, they have received relatively less attention.
The UK is the Republic of Ireland’s largest direct trading partner. In purely economic terms, the economy of Northern Ireland accounts for only 2.1% of UK Gross Domestic Product (GDP).
So, from the perspective of the Republic of Ireland, it is the effect of the EU withdrawal of the whole of the UK which is critical.
In addition, the UK is the country through which almost all the Republic of Ireland’s exports and imports travel. As such, any customs-related disruptions in transportation and logistics systems between the UK and the EU at the sea or air borders of Great Britain could inadvertently affect the Republic of Ireland’s economy, even if ways are found to keep the Irish land border completely open. For both parts of the island of Ireland the details surrounding Brexit are therefore of critical importance economically as well as politically.
We know from the World Input-Output Database 2013 release that final demand in the UK accounts for 5.8% of the GDP of the Republic of Ireland and 6.1% of its employment. In relative terms, Ireland is therefore the country which is the most dependent on UK markets for its prosperity, followed by Malta (4.9% of its GDP), the Netherlands (3.7%) and Belgium (2.9%).
Not surprisingly, the level of dependence on the UK economy is often commented on in the Irish media with genuine concern. However, to put this into perspective, the UK economy is much more dependent on the economy of the rest of the EU, with a two-thirds greater level of dependence, than the Irish economy has on the UK economy.
Our analysis has calculated the level of trade-related risk exposure that European regions and nations face as a result of Brexit. This is done by considering the effects on all trade flows and global value-chains criss-crossing countries across the world, including the EU.
Our results show that the Brexit trade-related risk exposure of the Republic of Ireland as a whole is 10.12% of its GDP. In terms of countries, the Republic Ireland’s trade-related exposure to Brexit is second only in size to that of the UK itself, at 12.2% of its GDP.
The Brexit trade-related exposure of UK regions varies between 9.8% and 10.2% of local GDP in NorthEastern Scotland and London, up to 15.8% in East Riding and North Lincolnshire, and 16.3% in Cumbria.
In contrast, the average for the EU as whole without the UK is only 2.64% of EU GDP. Exposure of different areas of the Republic of Ireland to Brexit sits at 10.12-10.13%, while that of Northern Ireland is 11.7% of its GDP.
In other words, the UK is 4.6 times more exposed to Brexit than the rest of the EU; the Republic of Ireland is 3.8 times more exposed to Brexit than the EU as a whole excluding the UK; and Northern Ireland is 4.4 times more exposed than the rest of the EU.
If we consider broad industrial sectors, we see that in the Republic of Ireland it is the primary industries which are the most exposed to Brexit – and in particular those sectors related to agriculture – whose exposure levels vary between 20% and 30% of the primary sector’s GDP.
The Brexit trade-related exposure of manufacturing industries in the Republic of Ireland is approximately 18% of their GDP, while for the service and construction industries it is approximately 6% and 2%, respectively.
For Northern Ireland, the Brexit trade-related exposure of primary industries – mainly agriculture – is 19% of primary industries’ GDP, for manufacturing it is 32% of manufacturing GDP, for services it is 8% of service industries’ GDP, and for construction it is 1% of Northern Ireland’s construction sector’s GDP.
As such, although in aggregate the Brexit trade-related exposure of both parts of the island of Ireland are very similar, and also slightly lower than for the UK as whole, there are also marked sectoral differences in the Brexit trade-related risk exposure between Northern Ireland and the Republic of Ireland.
Both manufacturing and service industries in Northern Ireland are relatively more exposed to Brexit than their counterparts in the Republic of Ireland, while primary industries in the Republic of Ireland are more exposed than their counterparts in Northern Ireland. In particular, the largest differences are between the relative levels of Brexit trade-related exposure for manufacturing industries north and south of the Irish border.
What these observations imply is that whatever the final UK-EU post-Brexit deal agreed, unless exposure to trade disruption on both parts of the island of Ireland is limited by remaining in both the customs union and the single market, then the impacts of Brexit are likely to differ significantly between the north and south of the Irish border.