The P³ is of course upset at an LSE report because the LSE report says that Scottish independence might not be the economic slam dunk the P³ tells folks it will be.
The report is here.
We estimate there is around six times more trade between Scotland and the rest of the UK
than predicted by a standard gravity trade model. Alternative methods imply there is from
2.6 to 7.8 times more Scotland-rest of UK trade than predicted. This excess trade is partly
the consequence of Scotland’s union with the rest of the UK.
• Independence would create a new international border between Scotland and the rest of the
UK, leading to higher trade costs. We use the CEP trade model to study the impact of these
new trade costs on Scotland’s economy. We do not consider other effects of independence,
such as changes in investment flows, fiscal arrangements or Scotland’s currency.
• Drawing upon research on the magnitude of border costs, we analyse an optimistic scenario
where trade costs between Scotland and the rest of the UK increase by 15% after
independence and a pessimistic scenario with a 30% increase.
All reasonable enough. Note that gravity model. If you use just and only geographic location then you get the expectation of less trade than we have. If you use economic distance – being in a customs union reduces economic distance from having two separate customs areas – then that nicely explains that.
So, The P³:
Third, the trade is abnormal because there is no border: if there was the flows would be different, as I note below.
The fact that geography also dictates that at present it is convenient to import and export through England just adds to the chance that this possibility is high.
But there are more issues (actually many more, but there are limits to the number that need be noted).
Take, for example, the claim that the cost of trade between Scotland and England will increase by 31%. Ludicrously, this is based on the estimated cost increase in trade between the UK and Ireland in 1922. As assumptions go, I cannot think of anything more ridiculous. The UK and Ireland were pretty much still at war. The UK controlled all the routes in and out of Ireland and could charge what it liked, and technology was utterly different. To pretend that this data is in any way relevant is absurd. Sheer common sense suggests that the comparison makes no sense.
There is a final absurdity to note. The authors seem to assume that there will be no behavioural changes despite these costs. But just look at what is happening in Ireland right now. Literally, almost overnight new freight routes that avoid costs have opened. And so would they from Scotland to avoid the claimed costs of going through England. This would be most especially the case if Scotland rejoined the EU, when import substitution from the UK might be very significant.
Ignorant damn twat. The behavioural changes resulting from the changes in costs are what they’re studying.