The bilateral trade effects of announcement shocks: Brexit as a natural field experiment

Mustapha Douch, Terence Huw Edwads*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We analyse the effects of uncertainty and anticipation shocks associated with the 2016 Brexit vote as a treatment on trade between the UK and 14 EU and 14 non-EU trading partners, using the synthetic control method (SCM). After controlling for exchange rate and GDP changes, UK exports to both groups of countries fell below those of the ‘synthetic Britain’, with much of the shortfall developing over the year prior to the referendum, following the 2015 Conservative general election win. The results indicate that UK exports to EU countries may have lost nearly 25% by early 2018, due to the Brexit shock, somewhat more than those to non-EU countries. Imports from the EU and non-EU countries also declined a little, although there is tentative evidence that UK consumers may have been avoiding countries with preferential trade agreements (PTAs) with the EU, and possibly turning towards the Commonwealth. Overall, the results confirm that policy uncertainty has a major effect upon trade and that uncertainty about supply chain costs is a potential explanation for at least some of the shortfall.
Original languageEnglish
JournalJournal of Applied Econometrics
Early online date30 Aug 2021
DOIs
Publication statusE-pub ahead of print - 30 Aug 2021

Keywords

  • anticipation
  • policy uncertainty
  • Brexit
  • synthetic control method

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  • Trade in Goods Inquiry

    Terence Huw Edwards (Participant), Mustapha Douch (Participant), Enrico Vanino (Participant) & Jun Du (Participant)

    9 Nov 2021

    Activity: Consultancy typesProviding oral or written evidence for non-academic board, committee, working group or advisory panel

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