Working Paper: NBER ID: w28053
Authors: Saad Ahmad; Nuno Limo; Sarah Oliver; Serge Shikher
Abstract: We estimate the impact of increased policy uncertainty from Brexit on UK trade in services. We apply an uncertainty-augmented gravity equation to UK services trade with the European Union at the industry level from 2016Q1 to 2018Q4. By exploiting the variation in the probability of Brexit from prediction markets interacted with a new trade policy risk measure across service industries we identify a significant negative impact of the threat of Brexit on trade values and participation. The increased probability of Brexit in this period lowered services exports by at least 20 log points.
Keywords: Brexit; policy uncertainty; trade in services; gravity model
JEL Codes: F02; F13; F14; L8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| probability of Brexit (C11) | policy uncertainty (D89) |
| policy uncertainty (D89) | trade values (D46) |
| probability of Brexit (C11) | services exports (F19) |
| policy uncertainty (D89) | services exports (F19) |