While economists say a British exit from the EU - or Brexit, as it is known - would be painful mainly for the country itself and to a lesser extent for rest of the Europe, the consequences for the global economy are harder to estimate.
When you wake up this Friday morning the UK may no longer be part of the European Union. Or not. At the time of writing the polls are very close and most political pundits are loathe to call the outcome.
Not so with the economics community. The chief economists at
international agencies such as the OECD and the IMF, the boffins at the Bank of England, and various private sector bank economists are unanimous in saying leaving would be an economic mistake, one that would possibly lead to long-term stagnation of the UK economy.
The basic principle behind their analysis is that larger markets create more competition, which in turn fosters innovation, productivity growth, lower prices, and greater consumer choice. If Brexit occurs there is no doubt that UK goods, services and capital, as well as people, will enjoy less access to the much larger economy across the Channel. Its effective market size will shrink.
The NZIER penned a recent piece drawing out the implications of Brexit for New Zealand. It estimates that our exports to the UK could drop by $190 million per year due to slower UK income growth; negatively impacting the demand for agricultural produce such as sheep meat, wine, apples and pears, wool and honey, as well as crimping the number of UK tourists. This drop in exports is not a particularly big number in itself, but the bigger risk is that Brexit would negatively impact the chances of further global economic integration efforts. Especially at a time when ugly nationalistic, anti-immigration politicians are gaining traction across the global stage.
The basic trade-off voters in the UK face is how much they are willing to risk free access and economic prosperity for greater sovereignty, such as the right to determine immigration and regulatory policies?
