Publications

CBP Research Publications

As part of our research, we have produced a series of detailed publications which you are welcome to download and study the findings.

Click on any publication you’re interested in below to view and download.

Trade & GVCs (TG) Publications

Business Confidence, TCA Adaptation, and Export Performance

Authors: Jun Du

Business confidence or business sentiment is a measure of how a firm’s managers perceive the external environment and how they feel about their current and future business prospects.i,ii It has both objective and subjective elements. The objective elements relate to business perceptions of both the facts of the operational environment and the arguments being presented about future expectations, while the subjective element relates to how a firm’s management assesses its specific business conditions.
Business sentiment matters because business decisions are likely to be affected by it, although exactly how this occurs remains debatable.iii The expectations of business owners/managers drive their strategic and operational decisions,iv including those to do with the firm’s capital structure, investment, M&A, innovation, and dividends.v,vi Business sentiment is also used to track changes in businesses’ perceptions of export barriers over time.vii

Post-Brexit UK Trade – An Update

Authors: Jun Du, Emine Beyza Satoglu and Oleksandr Shepotylo

This insight paper provides three insights on UK trade post-Brexit. First, we update Du and Shepotylo’s (2022) assessment of the TCA impact on UK trade. By using data up to 2022Q1, we show that the negative, large, and statistically significant impact of the TCA on UK exports has persisted and even slightly deepened into 2022. This highlights the continuing export challenges that UK firms have faced since the TCA was put in force and underscores the need to systemically think about the UK’s post-Brexit trade policy. Second, unlike exports, the negative impact of the TCA on imports has been subsiding. Although there is a confluence of many factors that might explain the Brexit imports puzzle, it appears to be more of a teething problem. The reduction in import bottlenecks might help exports to rebound, although the rising costs of imports are likely to offset the effect of that recovery. Third, the UK has experienced a significant contraction in its trading capacity in terms of the varieties of goods being exported to the EU due to the TCA. An estimated loss of 42% of product varieties over the 15 months since Brexit, combined with an increased concentration of export values to fewer products, signify some serious long-term concerns about the UK’s future exporting and productivity.

This is an updated version in February 2023, from the December 2022 version, including an additional sensitiveness analysis on product counts due to changes in trade statistical threshold of reporting by the HMRC.

TCA, Non-Tariff Measures and UK Trade

Authors: Jun Du and Oleksandr Shepotylo

[CBP Project TG-1 Non-tariff Trade Barriers and EU Exit}

The UK exit from the EU generates additional trade costs between the two parties, and the new trade costs are largely non-tariff related. We calculate ad valorem equivalents (AVE) of non-tariff measures (NTMs) and estimate their impact on the UK trade in 2021 after the end of the Brexit transition period. Using the synthetic control difference-in-difference methodology we find that the EU-UK Trade and Cooperation Agreement (TCA) had a strong, negative, and significant impact on UK bilateral trade with the EU countries, leading to 22% reduction in exports and a 26% reduction in imports. UK trade with non-EU countries has not been significantly affected. The increased trade frictions due to sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) measures as a result of entering the TCA played an important role in the decline of UK exports to the EU. On average for the first six month of 2021, a 1% increase in AVE SPS results in a 13-15% reduction in exports to the EU, and a 1% increase in TBT leads to a 2-3% reduction in exports. This amounts to a staggering reduction of UK exports by £12.4 billion (15.6% relative to the first half of 2019 or 70% of the total documented reduction in the EU exports) over this period by a simple back-of-envelope calculation. These effects are spread across a range of industrial sectors and in all EU countries/export destinations. The results hold to a range of robustness tests and do not appear to be “teething problems”. Further, no such effect is found for UK imports from the EU, likely due to the absence of border checks in the UK. Evidence suggests that UK products subject to a higher level of SPS being diverted towards the non-EU destinations, while the same cannot be said for products with higher TBT measures. Our findings point to specific aspects of UK-EU trade frictions that represent the steepest costs of Brexit and overall highlight the importance of domestic policy and measures in the near term.

The Heterogeneous Effect of Uncertainty on Firms Trade Margins Destruction and Diversion

Authors: Mustapha Douch, Jun Du and Enrico Vanino

[CBP Research Paper 1]

Uncertainty over future tariff schedules and customs arrangements is a key factor in defying firms’ participation in international markets. This paper investigates firm heterogeneity in the effects of trade policy uncertainty on the margins of trade, exploiting the Brexit process as a quasi-natural experiment and using transaction-level trade data for UK firms. Comparing UK trade flows to the EU and extra-EU countries, and the variations of product-specific tariff threats along firm size, our results show an overall reduction in UK-EU trade flows in respect with extra-EU markets, as uncertainty regarding future trade policies increased during the post-Brexit referendum negotiations. This is the result of two contemporaneous effects: a destruction of trade flows for smaller firms more exposed to uncertainty and potential tariffs, while a consolidation and diversion of trade flows, in particular towards more distant and emerging extra-EU markets, for larger firms. Falsification tests and alternative identification strategies corroborate the robustness of the main findings.

UK Covid-19 and UK Trade

Authors: Jun Du & Oleksandr Shepotylo

This paper documents the unprecedented disruptions which affected UK trade during the COVID-19 pandemic in 2020. Overall UK exports contracted by 15% in 2020, while an international comparison depicts similar sharp declines among the UK’s peers, but the statistics suggest that UK had a deeper decline and slower recovery, compared with Germany, Italy, Spain and the US. Drawing on the most recent available monthly trade transactions between the UK and its trading partners up to September/October 2020, we make pioneering efforts to provide a comprehensive and in-depth analysis of the international trade dynamics of UK businesses.

Markets & Policy (MP) Publications

Supply- VS. Demand-Side Transparency: The Collusive effects under Imperfect Public Monitoring

Authors: Matthew Olczak & Luke Garrod

We analyse how market transparency affects collusion under imperfect monitoring where punishment phases occur on the equilibrium path. We show that increased transparency causes a ‘pro-competitive’ demand-side effect and an ‘anti-competitive’ supply-side effect on the optimal symmetric perfect public equilibrium (SPPE) profits. When transparency increases on both sides of the market, the optimal SPPE profits unambiguously increase at the perfect monitoring limit, because the pro-competitive demand-side effect vanishes. This result holds even when there is minimal structure on the competition game. The supply-side effect also dominates away from the limit under reasonable conditions. We draw conclusions for policy.

MNEs, SDG & Green Economy (MG) Publications

Carbon Neutrality: The Role of Banks in Optimal Environmental Management Strategies

Authors: Sajid Chaudhry, Asif Saeed and Rizwan Ahmed

This study explores the ecological ambitions of banks by studying the coincidence of economic realities with environmental management strategies. We address this question by studying the environmental performance of US banks and its impact on their tail risk as US is not committed to carbon neutrality in COP 21. We proxy economic reality with tail risk of banks and employ a novel extreme value theory to measure this. We use Asset4 ESG data for environmental performance score and test our hypothesis with a sample of 256 US banks. We proxy economic reality with tail risk of banks and employ a novel extreme value theory to measure this.

Does Culture affect Energy Poverty? Evidence from a Cross-Country Analysis

Authors: Sajid Chaudhry and Muhammad Shafiullah

We investigate the impact of cultural dimension on energy poverty—a topic hitherto overlooked in the literature—employing panel fixed effects, logistic, and heteroskedasticity identified endogenous variable regression estimators. The panel framework incorporates 103 countries over a period of 1971–2018. Using five different proxies representing the cultural dimensions and other demographic and macroeconomic control variables, the empirical analyses reveal that power distance and masculinity (as opposed to femininity) worsen the conditions of energy poverty while individualism (as opposed to collectivism) and long/short-term orientation (i.e., pragmatism vs. traditionalism/conservatism) tend to lessen the probability of energy deprivation.

LBGCBP Research Publications