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Four years on, how has the Brexit vote affected the UK economy?
Higher import prices, reduced investment, slower growth. Trade & employment resilient
Evidence points to annual cost per person between £500 and £1000
Thread summarising academic literature to date (pre-covid) 1/
Higher import prices, reduced investment, slower growth. Trade & employment resilient
Evidence points to annual cost per person between £500 and £1000
Thread summarising academic literature to date (pre-covid) 1/
GDP
UK growth slowed after the referendum relative to other countries
Using synthetic control method, @bornecon, Mueller, @MSchularick & @SedlacekPe estimate loss of 2.1% of GDP by Q1 2019. This amounts to £45 billion per year or £700 per person
https://tinyurl.com/y785jp2u 2/
UK growth slowed after the referendum relative to other countries
Using synthetic control method, @bornecon, Mueller, @MSchularick & @SedlacekPe estimate loss of 2.1% of GDP by Q1 2019. This amounts to £45 billion per year or £700 per person
https://tinyurl.com/y785jp2u 2/
GDP ctd.
Adopting similar approach, @JohnSpringford estimates GDP loss of 2.9% by Q2 2019.
https://www.cer.eu/insights/cost-brexit-june-2019
GDP growth slowdown started in 2017. Initially driven by lower private consumption, with reduced business investment also contributing from 2018 onwards 3/
Adopting similar approach, @JohnSpringford estimates GDP loss of 2.9% by Q2 2019.
https://www.cer.eu/insights/cost-brexit-june-2019
GDP growth slowdown started in 2017. Initially driven by lower private consumption, with reduced business investment also contributing from 2018 onwards 3/
Cost of living
Leave vote caused sterling to fall by around 10% raising import costs & consumer prices
Breinlich, Leromain, @DennisNovy & I estimate depreciation increased cost of living by 2.9% by Q2 2018, costing average household £870 per year
http://cep.lse.ac.uk/pubs/download/dp1667.pdf 4/
Leave vote caused sterling to fall by around 10% raising import costs & consumer prices
Breinlich, Leromain, @DennisNovy & I estimate depreciation increased cost of living by 2.9% by Q2 2018, costing average household £870 per year
http://cep.lse.ac.uk/pubs/download/dp1667.pdf 4/
Wages
Depreciation increased price of imported inputs. Costa, @swatdhingraLSE & @s_machin_ show this led to declines in wages and training for workers in industries that experienced bigger price rises. No evidence of offsetting export price rises. https://tinyurl.com/yaaradyp 5/
Depreciation increased price of imported inputs. Costa, @swatdhingraLSE & @s_machin_ show this led to declines in wages and training for workers in industries that experienced bigger price rises. No evidence of offsetting export price rises. https://tinyurl.com/yaaradyp 5/
Investment
Brexit uncertainty has reduced capital investment resulting in lower productivity and output
Bank of England Decision Makers Panel survey finds uncertainty reduced investment by 11% & productivity by 2%-5% by June 2019 @BoE_Research
https://tinyurl.com/y9oowrdv 6/
Brexit uncertainty has reduced capital investment resulting in lower productivity and output
Bank of England Decision Makers Panel survey finds uncertainty reduced investment by 11% & productivity by 2%-5% by June 2019 @BoE_Research
https://tinyurl.com/y9oowrdv 6/
Investment ctd.
Hassan, @StephanHollan, @L_van_Lent & Tahoun measure uncertainty using firms' earnings conference calls. Find higher Brexit risk associated with lower investment & employment growth, but not related to sales growth. More here
https://twitter.com/thom_sampson/status/1225154198376984577 7/
Hassan, @StephanHollan, @L_van_Lent & Tahoun measure uncertainty using firms' earnings conference calls. Find higher Brexit risk associated with lower investment & employment growth, but not related to sales growth. More here
https://twitter.com/thom_sampson/status/1225154198376984577 7/
Foreign investment
Brexit vote has reduced number of new foreign investment projects in UK
Using synthetic control method, @ilonaserwicka &
@NTamberi @uk_tpo estimate referendum reduced new investment projects in UK by 16%-20% by July 2018
https://preview.tinyurl.com/y8s58285 8/
Brexit vote has reduced number of new foreign investment projects in UK
Using synthetic control method, @ilonaserwicka &
@NTamberi @uk_tpo estimate referendum reduced new investment projects in UK by 16%-20% by July 2018
https://preview.tinyurl.com/y8s58285 8/
Foreign investment ctd
Brexit vote increased outward investment projects from UK in EU. Breinlich, Leromain, @DennisNovy & I estimate vote led to 17% increase in new projects by UK firms in EU by Q1 2019. Increase driven by services, not manufacturing https://www.sciencedirect.com/science/article/pii/S0014292120300325 9/
Brexit vote increased outward investment projects from UK in EU. Breinlich, Leromain, @DennisNovy & I estimate vote led to 17% increase in new projects by UK firms in EU by Q1 2019. Increase driven by services, not manufacturing https://www.sciencedirect.com/science/article/pii/S0014292120300325 9/
Trade
Threat of higher tariffs has made firms less likely to trade with EU. @MeredithCrowle1, Exton & Han find reduced entry & increased exit in late 2016 for firm-product pairs more exposed to potential tariff increases. Entry down 5%, exit up 6.1% https://tinyurl.com/ybepolkd 10/
Threat of higher tariffs has made firms less likely to trade with EU. @MeredithCrowle1, Exton & Han find reduced entry & increased exit in late 2016 for firm-product pairs more exposed to potential tariff increases. Entry down 5%, exit up 6.1% https://tinyurl.com/ybepolkd 10/
Trade ctd.
@AGGraziano, Limao & @KyleLHandley find Brexit uncertainty reduced UK-EU trade flows even before the referendum https://tinyurl.com/y73cs6au
@douch_m, @jundu1mecom & @EnricoVanino find evidence of trade diversion away from EU for smaller firms https://tinyurl.com/ydcgkff5 11/
@AGGraziano, Limao & @KyleLHandley find Brexit uncertainty reduced UK-EU trade flows even before the referendum https://tinyurl.com/y73cs6au
@douch_m, @jundu1mecom & @EnricoVanino find evidence of trade diversion away from EU for smaller firms https://tinyurl.com/ydcgkff5 11/
Trade ctd.
Broadbent Di Pace @td_econ Harrison & Tenreyro model Leave vote as news about a future growth decline in tradable sector. Depreciation then creates a temporary sweet spot for tradable producers before higher trade barriers come into effect
https://tinyurl.com/yd2wvgt5 12/
Broadbent Di Pace @td_econ Harrison & Tenreyro model Leave vote as news about a future growth decline in tradable sector. Depreciation then creates a temporary sweet spot for tradable producers before higher trade barriers come into effect
https://tinyurl.com/yd2wvgt5 12/
Trade ctd.
EU's share of aggregate UK trade has remained stable since the referendum
Brexit yet to cause big changes to geography of UK trade
https://twitter.com/thom_sampson/status/1265894427861671936 13/
EU's share of aggregate UK trade has remained stable since the referendum
Brexit yet to cause big changes to geography of UK trade
https://twitter.com/thom_sampson/status/1265894427861671936 13/
Employment
No sign the referendum outcome affected aggregate employment growth
But @BJavorcik, Kett, Stapleton & O'Kane do find evidence of fewer online job vacancies in regions more exposed to the threat of future increases in UK-EU trade barriers
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3518560 14/
No sign the referendum outcome affected aggregate employment growth
But @BJavorcik, Kett, Stapleton & O'Kane do find evidence of fewer online job vacancies in regions more exposed to the threat of future increases in UK-EU trade barriers
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3518560 14/
Immigration
Unlike trade, immigration patterns have shifted dramatically since the referendum. EU's share of net migration has fallen from over 50% in year to June 2016 to 15% in 2019 (data quality a concern here)
Not aware of a literature on this yet (suggestions welcome) 15/
Unlike trade, immigration patterns have shifted dramatically since the referendum. EU's share of net migration has fallen from over 50% in year to June 2016 to 15% in 2019 (data quality a concern here)
Not aware of a literature on this yet (suggestions welcome) 15/
Summary
Available evidence suggests Brexit vote has made the UK poorer.
GDP is likely between 1.5% and 3% lower than if the UK had voted to remain.
This amounts to an annual loss of £500-£1000 per person or £33 billion-£66 billion in aggregate 16/
Available evidence suggests Brexit vote has made the UK poorer.
GDP is likely between 1.5% and 3% lower than if the UK had voted to remain.
This amounts to an annual loss of £500-£1000 per person or £33 billion-£66 billion in aggregate 16/
Looking forward (speculative)
Full economic consequences of Brexit yet to materialise
Trade barriers will not change until transition period ends
Little is known about whether/how Brexit will interact with Covid-19
There is probably more to come 17/
Full economic consequences of Brexit yet to materialise
Trade barriers will not change until transition period ends
Little is known about whether/how Brexit will interact with Covid-19
There is probably more to come 17/
Apologies to papers I've missed, it's a fast growing literature
Thanks to @ESRC @UKandEU @anandMenon1 & @CEP_LSE for funding many of these papers. Research is costly & this work would not have been possible with generous support 18/
Thanks to @ESRC @UKandEU @anandMenon1 & @CEP_LSE for funding many of these papers. Research is costly & this work would not have been possible with generous support 18/
Some corrected links
@MeredithCrowle1, Exton & Han on trade: https://www.inet.econ.cam.ac.uk/working-paper-pdfs/wp1810.pdf
@douch_m, @jundu1mecom & @EnricoVanino on trade: https://www.lbpresearch.ac.uk/wp-content/uploads/2020/05/P3-Defying-Gravity-Policy-Uncertainty-Trade-Destruction-and-Diversion-May.pdf
BoE work on uncertainty: https://www.bankofengland.co.uk/working-paper/2019/the-impact-of-brexit-on-uk-firms 19/
@MeredithCrowle1, Exton & Han on trade: https://www.inet.econ.cam.ac.uk/working-paper-pdfs/wp1810.pdf
@douch_m, @jundu1mecom & @EnricoVanino on trade: https://www.lbpresearch.ac.uk/wp-content/uploads/2020/05/P3-Defying-Gravity-Policy-Uncertainty-Trade-Destruction-and-Diversion-May.pdf
BoE work on uncertainty: https://www.bankofengland.co.uk/working-paper/2019/the-impact-of-brexit-on-uk-firms 19/
