Working Paper: NBER ID: w25334
Authors: Alejandro Graziano; Kyle Handley; Nuno Limao
Abstract: We estimate the uncertainty effects of preferential trade disagreements. Increases in the probability of Britain’s exit from the European Union (Brexit) reduce bilateral export values and trade participation. These effects are increasing in trade policy risk across products and asymmetric for UK and EU exporters. We estimate that a persistent doubling of the probability of Brexit at the average disagreement tariff of 4.5% lowers EU-UK bilateral export values by 15 log points on average, and more so for EU than UK exporters. Neither believed a trade war was likely.
Keywords: Brexit; Trade Disintegration; Trade Policy Uncertainty
JEL Codes: E02; F02; F1; F5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increases in the probability of Brexit (F69) | Reduce UK-EU exports (F14) |
| Increases in the probability of Brexit (F69) | Reduce net export entry (F10) |
| Persistent doubling of the probability of Brexit (C59) | Lower EU-UK bilateral export values (F10) |
| One standard deviation increase in the probability of Brexit (C29) | Reduces UK-EU trade (F19) |
| Higher potential protection in trade disagreements (F13) | Larger effects on products (F61) |
| MFN tariff scenario (F14) | Significant uncertainty elasticities (D89) |