Working Paper: CEPR ID: DP15051
Authors: Thiemo Fetzer; Shizhuo Wang
Abstract: Following the UK's vote to Leave the European Union, the UK's recorded record levels of employment. This led many pundits to claim that the downbeat forecasts for the UK's economy following the Brexit vote was simply capturing that these forecasts were biased and part of ``project fear.'' This paper studies the cost of the Brexit-vote to date across UK regions finding significant evidence that suggests that the economic costs of the Brexit-vote are sizable and far from evenly distributed across the UK. Among 382 districts, at least 168 districts appear to be Brexit-vote losers, having lost, on average 8.54 percentage points of output in 2018 compared to their respective synthetic controls. The results suggest that the economic losses in region- and district-level output due to the Brexit-vote are: a) increasing in a districts propensity to have supported Leave in 2016; b) concentrated in districts with notable employment or gross-value added activity in manufacturing; c) concentrated in districts with a resident population with relatively low levels of human capital. The Brexit-vote induced economic divergence across regions is already exacerbating regional economic inequalities that became so apparent in the 2016 EU referendum vote patterns. Further, there is some evidence suggesting that the regional economic impact of COVID19 may exacerbate the regional economic impact of the Brexit-vote to date.
Keywords: Brexit; Economic Impact; Evaluation; Trade Barriers
JEL Codes: F6; H2; H3; H5; P16; D7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher support for the Leave vote (D79) | Greater economic losses (F69) |
| Regions with larger manufacturing sectors (R11) | More significant declines in output (E23) |
| Areas with lower human capital (O15) | More adversely affected (I14) |
| Brexit vote (F69) | Significant economic losses across at least 168 districts (H84) |
| Brexit vote (F69) | Higher furlough rates during the pandemic (J65) |
| Greater output losses due to Brexit (F69) | Higher furlough rates during the pandemic (J65) |