Trade Effects of the Brexit Announcement Shock

Mustapha Douch (Aston University),  T.Huw Edwards (Loughborough University) and Christain Soegaard (University of Warwick)

Abstract: The unexpected vote for Leave in the Brexit referendum of June 2016 has introduced a classic case of a ‘rene- gotiation period’ for trade agreements, where no formal barriers have been imposed, but trade is affected by policy uncertainty. We analyse the effects upon bilateral trade between the UK and 14 EU and 14 non-EU trading partners, using a Synthetic Control Method (SCM), with the Brexit vote seen as a country-specific treatment effect upon the United Kingdom. Our main findings are that, after the exchange rate changes, UK exports have been lower than those of the ’synthetic Britain’, with only a modest difference between exports to EU and to non-EU countries. Robustness checks suggest that this is not attributable to short-term sluggishness in responding to a fall in Sterling. Imports from the EU have declined a little, while those from non-EU countries have if anything declined more. However, there is some evidence that UK consumers may be turning towards Commonwealth countries.

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