The impact of the new Northern Ireland protocol: can Northern Ireland enjoy the best of both worlds?

From the 1 January 2021 the new Protocol on Northern Ireland (NI) regulates NI’s trade with the European Union (EU) and Great Britain (GB). These rules imply divergence between trade arrangements in NI and GB creating an unprecedented situation where trade frictions arise between two regions of the same country. In this paper we use a multi-sector economic model to capture the impact that potential non-tariff barriers and tariffs will have on trade in NI. Simulation results demonstrate that a weaker relation between GB and the EU will have a greater negative impact on the NI economy. However, this may be reduced by the ability of NI firms to substitute intermediate inputs from GB for EU imports.