Dodgy Predictions: Osborne’s Equations from Long Discredited Model

Treasury Gravity Model

Lobby journalists and MPs have reacted with bewilderment at the Treasury’s use of a number of complex mathematical equations to underpin their argument for Brexit. This much vaunted analysis was based on a “gravity model”, a device used to model “trade flows between two countries as a function of economic variables such as GDP, geographic..and cultural variables”.

Well, the Treasury’s gravity model has been discounted numerous times for its use in predicting the impact that large scale economic changes will have on the economy. In 2005 Patrick Minford, Vidya Mahambare and Eric Nowell first looked at how useful gravity models were in predicting the effects of Brexit. Their conclusion was that they were far too simplistic:

“The gravity model may work numerically, and be more accurate in detail, for quite general changes in conditions, like a general drop in transport costs, mirroring globalisation, which is what Costinot and Rodiguez-Clare use it for. The problem with using it for a shock to trade structure like the UK leaving a customs union is that the responses will certainly not be the same as for a general globalisation shock; indeed such a shock changes the UK’s internal structure substantially, in a way not assumed in a gravity model.”

Essentially, the gravity model can’t take into account the numerous complexities that would arise in the event of Brexit. These sentiments are reiterated by Alan Deardorff, Professor of International Economics at the University of Michigan. Deardforff remarks in this paper on gravity models, that their sheer scope mean their “use for empirical tests of any of them is suspect”. So it looks like Osborne’s been too clever by half. His model has been long discredited. You can’t use a few trade equations to predict the future, they are only good for baffling hacks…




Tip offs: 0709 284 0531
team@Order-order.com

Quote of the Day

Dominic Cummings tells Damian Collins:

“You talk of ‘contempt of Parliament’. You seem unaware that most of the country feels contempt for Parliament and this contempt is growing.”

Sponsors

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.
Anti-Brexit ‘Renew’ Flops Anti-Brexit ‘Renew’ Flops
Robbins Hits Back at Brussels Robbins Hits Back at Brussels
7 Cummings Truth Bullets For Brexiter Tory MPs 7 Cummings Truth Bullets For Brexiter Tory MPs
German Firms Back Brexit Britain German Firms Back Brexit Britain
All-Remain Peston Show “Kerfuffle” All-Remain Peston Show “Kerfuffle”
Irish Border Camera Problem Solved Irish Border Camera Problem Solved
Remainers Tell Aussie Brexiter to Go Home Remainers Tell Aussie Brexiter to Go Home
Starmer Joins Orchestrated Remainer Attempt to Keep Us in Single Market Starmer Joins Orchestrated Remainer Attempt to Keep Us in Single Market
Hancock: We’ll Be Staying in Eurovision Hancock: We’ll Be Staying in Eurovision
684 Days Since Referendum, Still No Policy on Customs 684 Days Since Referendum, Still No Policy on Customs
8 Reasons Brexiteers Cannot Accept May’s Customs Partnership 8 Reasons Brexiteers Cannot Accept May’s Customs Partnership
LibDem Peer Compares May to Hitler LibDem Peer Compares May to Hitler
Rudd’s Customs Union Bombshell Rudd’s Customs Union Bombshell
Mogg: Number 10’s Customs Partnership Is a ‘Cretinous Betrayal of Good Sense’ Mogg: Number 10’s Customs Partnership Is a ‘Cretinous Betrayal of Good Sense’
Why Brexiteers Are Worried Why Brexiteers Are Worried
May Told to Ditch Customs Partnership “Turkey” May Told to Ditch Customs Partnership “Turkey”
Anti-Brexit Bias of Former Top Civil Servants Anti-Brexit Bias of Former Top Civil Servants
Government Loses Lords Customs Union Vote Government Loses Lords Customs Union Vote
Is Bond Really a Remainer? Is Bond Really a Remainer?