We propose a prototype model of market dynamics in which all functional relationships are linear. We take into account three borders, defined by linear functions, which are intrinsic to the economic reasoning: non-negativity of prices; downward rigidity of capacity (depreciation) and a capacity constraint for the production decision. Given the linear specification, the borders are the only source for the emerging of cyclical and more complex dynamics. In particular, we discuss centre bifurcations, border collision bifurcations and degenerate flip bifurcations - dynamic phenomena the occurrence of which are intimately related to the existence of borders. / Series: Department of Economics Working Paper Series

We explore the effects of Brexit on trade patterns and on the spatial distribution of industry between the United Kingdom and the European Union and within the EU. Our study adopts a new economic geography (NEG) perspective developing a linear model with three regions, the UK and two separated regions composing the EU. The 3-region framework and linear demands allow for different trade patterns. Two possible ante-Brexit situations are possible, depending on the interplay between local market size, local competition and trade costs: industrial agglomeration or dispersion. Considering a soft and a hard Brexit scenario, the ante-Brexit situation is altered substantially, depending on which scenario prevails. UK firms could move to the larger EU market, even in the peripheral region, reacting to the higher trade barriers, relocation representing a substitute for trade. Alternatively, some EU firms could move in the more isolated UK market finding shelter from the competition inside the EU. We also consider the post-Brexit scenario of deeper EU integration, leading to a weakening of trade links between the EU and the UK. Our analysis also reveals a highly complex bifurcation sequence leading to many instances of multistability, intricate basins of attraction and cyclical and chaotic dynamics. / Series: Department of Economics Working Paper Series