Working Paper: CEPR ID: DP16970
Authors: Thomas Sampson; Swati Dhingra
Abstract: The Brexit vote precipitated the unravelling of the UK's membership of the world's deepest economic integration agreement. This paper reviews evidence on the realized economic effects of Brexit. The 2016 Brexit referendum changed expectations about future UK-EU relations. Studying its consequences provides new insights regarding the economic impacts of news and uncertainty shocks. Voting for Brexit had large negative effects on the UK economy between 2016 and 2019, leading to higher import and consumer prices, lower investment, and slower real wage and GDP growth. However, at the aggregate level, there was little or no trade diversion away from the EU, implying that many of the anticipated long-run effects of Brexit did not materialize before the new UK-EU trade relationship came into force in 2021.
Keywords: Brexit; Trade; Policy; Uncertainty; Exchange Rates
JEL Codes: E22; E65; F13; F15; F16; F31; F40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Voting for Brexit (K16) | UK economy (N14) |
| Fall in sterling (E49) | Consumer prices (P22) |
| Fall in sterling (E49) | Input costs (D24) |
| Consumer prices (P22) | Real wages (J31) |
| Input costs (D24) | Real wages (J31) |
| Brexit vote (F69) | Higher import and consumer prices (E31) |
| Brexit vote (F69) | Lower investment (G31) |
| Brexit vote (F69) | Slower real wage growth (J39) |
| Brexit vote (F69) | Slower GDP growth (F69) |
| Large depreciation of sterling (F31) | Reduced investment (G31) |
| Large depreciation of sterling (F31) | Reduced consumption (E21) |
| Brexit (F19) | Long-term economic outcomes (F69) |