1932

Abstract

The Brexit vote precipitated the unraveling of the United Kingdom's membership in the world's deepest economic integration agreement. This article 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 European Union, 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.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-051420-104231
2022-08-12
2024-04-25
Loading full text...

Full text loading...

/deliver/fulltext/economics/14/1/annurev-economics-051420-104231.html?itemId=/content/journals/10.1146/annurev-economics-051420-104231&mimeType=html&fmt=ahah

Literature Cited

  1. Ahmad S, Limão N, Oliver S, Shikher S. 2020. Brexit uncertainty and its (dis)service effects NBER Work. Pap. 28053
  2. Albornoz F, Bradley J, Sonderegger S. 2021. The Brexit referendum and the rise in hate crime: conforming to the new norm Work. Pap., Univ. Nottingham Nottingham, UK:
  3. Ayele Y, Larbalestier G, Tamberi N. 2021. Post Brexit: trade in good and services (II) Brief. Pap. 63, UK Trade Policy Obs., Univ. Sussex Brighton, UK:
  4. Ayele Y, Winters A. 2020. Should the Brexit sterling depreciation have boosted exports? How exchange rates affect trade and prices Brief. Pap. 44, UK Trade Policy Obs., Univ. Sussex Brighton, UK:
  5. Baker J, Carreras O, Ebell M, Hurst I, Kirby S et al. 2016. The short–term economic impact of leaving the EU. Natl. Inst. Econ. Rev. 236:108–20
    [Google Scholar]
  6. Beatty C, Fothergill S. 2014. The local and regional impact of the UK's welfare reforms. Camb. J. Reg. Econ. Soc. 7:163–79
    [Google Scholar]
  7. Becker SO, Fetzer T, Novy D. 2017. Who voted for Brexit? A comprehensive district-level analysis. Econ. Policy 32:92601–50
    [Google Scholar]
  8. Berman N, Martin P, Mayer T. 2012. How do different exporters react to exchange rate changes?. Q. J. Econ. 127:1437–92
    [Google Scholar]
  9. Bevington M, Huang H, Menon A, Portes J, Rutter J, Sampson T 2019. The economic impact of Boris Johnson's Brexit proposals CEP Brexit Anal. 16, Cent. Econ. Perform., London Sch. Econ. London:
  10. Bloom N, Bunn P, Chen S, Mizen P, Smietanka P et al. 2018. Brexit and uncertainty: insights from the Decision Maker Panel. Fiscal Stud 39:4555–80
    [Google Scholar]
  11. Bloom N, Bunn P, Chen S, Mizen P, Smietanka P, Thwaites G. 2019. The impact of Brexit on UK firms NBER Work. Pap. 26218
  12. Born B, Müller GJ, Schularick M, Sedláček P. 2019. The costs of economic nationalism: evidence from the Brexit experiment. Econ. J. 129:6232722–44
    [Google Scholar]
  13. Breinlich H, Leromain E, Novy D, Sampson T. 2020. Voting with their money: Brexit and outward investment by UK firms. Eur. Econ. Rev. 124:103400
    [Google Scholar]
  14. Breinlich H, Leromain E, Novy D, Sampson T. 2022. The Brexit vote, inflation and U.K. living standards. Int. Econ. Rev. 63:6393
    [Google Scholar]
  15. Breinlich H, Leromain E, Novy D, Sampson T, Usman A. 2018. The economic effects of Brexit: evidence from the stock market. Fiscal Stud 39:4581–623
    [Google Scholar]
  16. Broadbent B, Di Pace F, Drechsel T, Harrison R, Tenreyro S. 2020. The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom Work. Pap., Univ. Md. College Park:
  17. Burstein A, Eichenbaum M, Rebelo S. 2005. Large devaluations and the real exchange rate. J. Political Econ. 113:4742–84
    [Google Scholar]
  18. Caliendo L, Parro F. 2015. Estimates of the trade and welfare effects of NAFTA. Rev. Econ. Stud. 82:11–44
    [Google Scholar]
  19. Campos NF. 2019. B for Brexit: a survey of the economics academic literature IZA Discuss. Pap. 12134, Inst. Labor Econ. Bonn, Ger:.
  20. Campos NF, Coricelli F, Moretti L. 2014. Economic growth and political integration: estimating the benefits from membership in the European Union using the synthetic counterfactuals method IZA Discuss. Pap. 8162, Inst. Labor Econ. Bonn, Ger:.
  21. Chen N, Chung W, Novy D 2022. Vehicle currency pricing and exchange rate pass-through. J. Eur. Econ. Assoc. 20:31251
    [Google Scholar]
  22. Chen W, Los B, McCann P, Ortega-Argiles R, Thissen M, van Oort F. 2018. The continental divide? Economic exposure to Brexit in regions and countries on both sides of The Channel. Pap. Reg. Sci. 97:125–54
    [Google Scholar]
  23. Corsetti G, Crowley MA, Han L. 2022. Invoicing and the dynamics of pricing-to-market: evidence from UK export prices around the Brexit referendum. J. Int. Econ. 135:103570
    [Google Scholar]
  24. Costa R, Dhingra S, Machin S. 2019. Trade and worker deskilling Work. Pap., Lond. Sch. Econ. London:
  25. Costa R, Dhingra S, Machin S. 2022. Real wage stagnation and the Brexit exchange rate depreciation Work. Pap., Lond. Sch. Econ. London:
  26. Crafts N. 2010. Openness, protectionism and Britain's productivity performance over the long run. CAGE Work. Pap. Ser. 36, Cent. Competitive Advant. Global Econ., Univ. Warwick Coventry, UK:
  27. Crowley MA, Exton O, Han L. 2019. Renegotiation of trade agreements and firm exporting decisions: evidence from the impact of Brexit on UK exports. CEPR Discuss. Pap. 13446, Cent. Econ. Policy Res. London:
  28. Curtice J 2017. Why Leave won the UK's EU referendum. J. Common Market Stud. 55:19–37
    [Google Scholar]
  29. Davies RB, Studnicka Z. 2018. The heterogeneous impact of Brexit: early indications from the FTSE. Eur. Econ. Rev. 110:1–17
    [Google Scholar]
  30. De Lyon J, Dhingra S. 2019. Economic performance since the EU referendum CEP Brexit Anal. 14, Cent. Econ. Perform., London Sch. Econ. London:
  31. De Lyon J, Dhingra S 2021a. Real-time updates on the UK economy: trends, expectations and implications from business survey data Pap. 26, Covid-19 Anal. Ser., Cent. Econ. Perform., Lond. Sch. Econ. London:
  32. De Lyon J, Dhingra S 2021b. The impacts of Covid-19 and Brexit on the UK economy: early evidence in 2021 Pap. 21, Covid-19 Anal. Ser., Cent. Econ. Perform., Lond. Sch. Econ. London:
  33. Dep. Int. Trade 2021. Impact assessment of the free trade agreement between the United Kingdom of Great Britain and Northern Ireland and Australia Dep. Int. Trade, UK Gov. London:
  34. Dhingra S. 2016. Salvaging Brexit, the right way to leave the EU. Foreign Aff 95:690–100
    [Google Scholar]
  35. Dhingra S, Huang H, Ottaviano G, Pessoa JP, Sampson T, Van Reenen J. 2017a. The costs and benefits of leaving the EU: trade effects. Econ. Policy 32:92651–705
    [Google Scholar]
  36. Dhingra S, Machin S, Overman H. 2017b. Local economic effects of Brexit. Natl. Inst. Econ. Rev. 242:R24–36
    [Google Scholar]
  37. Dhingra S, Ottaviano G, Sampson T, Van Reenen J. 2016. The impact of Brexit on foreign investment in the UK CEP Brexit Anal. 3, Cent. Econ. Perform., London Sch. Econ. London:
  38. Dorling D. 2018. Peak Inequality: Britain's Ticking Time Bomb Bristol, UK: Policy Press
  39. Douch M, Edwards TH. 2022. The bilateral trade effects of announcement shocks: Brexit as a natural field experiment. J. Appl. Econ. 37:30529
    [Google Scholar]
  40. Du J, Shepotylo O. 2021. Brexit and services trade: new evidence from synthetic diff-in-diff approach. UKICE Work. Pap. 08, UK Chang. Eur., King's Coll. Lond. London:
  41. Economist 2016. Who said Brexit was a surprise?. The Economist June 24. https://www.economist.com/graphic-detail/2016/06/24/who-said-brexit-was-a-surprise
    [Google Scholar]
  42. Faccini R, Palombo E. 2021. News uncertainty in Brexit United Kingdom. Am. Econ. Rev. Insights 3:2149–64
    [Google Scholar]
  43. Fajgelbaum PD, Goldberg PK, Kennedy PJ, Khandelwal AK. 2020. The return to protectionism. Q. J. Econ. 135:11–55
    [Google Scholar]
  44. Fernandes AP, Winters LA. 2021. Exporters and shocks: the impact of the Brexit vote shock on bilateral exports to the UK. J. Int. Econ. 131:103489
    [Google Scholar]
  45. Fetzer T. 2019. Did austerity cause Brexit?. Am. Econ. Rev. 109:113849–86
    [Google Scholar]
  46. Fetzer T, Wang S 2020.. Measuring the regional economic cost of Brexit: Evidence up to 2019 CEPR Discuss. Pap. 15051, Cent. Econ. Policy Res. London:
  47. Fisman R, Zitzewitz E. 2019. An event long-short index: theory and applications. Am. Econ. Rev. Insights 1:3357–72
    [Google Scholar]
  48. Freeman R, Manova K, Prayer T, Sampson T 2022. Unraveling deep integration: UK trade in the wake of Brexit Work. Pap., Lond. Sch. Econ. London:
  49. Giles C. 2018. Growth and Brexit: four lessons from the forecast wars. Financial Times April 27
    [Google Scholar]
  50. Giles C. 2019. Politics is failing on Brexit but economics has been on the money. Financial Times March 14
    [Google Scholar]
  51. Gourinchas PO, Hale G. 2017. Brexit: whither the pound FRBSF Econ. Lett. 11, Fed. Reserve Bank San Francisco San Francisco:
  52. Graziano AG, Handley K, Limão N. 2020. Brexit uncertainty: trade externalities beyond Europe. AEA Pap. Proc. 110:552–56
    [Google Scholar]
  53. Graziano AG, Handley K, Limão N. 2021. Brexit uncertainty and trade disintegration. Econ. J. 131:6351150–85
    [Google Scholar]
  54. Grey C. 2021. Brexit Unfolded Hull, UK: Biteback Publ.
  55. Griffith R, Harrison R, Macartney G. 2007. Product market reforms, labour market institutions and unemployment. Econ. J. 117:C142–66
    [Google Scholar]
  56. Hassan TA, Hollander S, Van Lent L, Tahoun A. 2021. The global impact of Brexit uncertainty NBER Work. Pap. 26609
  57. Hayward K. 2021.. “ Flexible and imaginative”: the EU's accommodation of Northern Ireland in the UK-EU Withdrawal Agreement. Int. Stud. 58:2201–18
    [Google Scholar]
  58. HM Treas 2016. HM Treasury analysis: the immediate economic impact of leaving the EU Rep., HM Treas., UK Gov. London:
  59. Hobijn B, Nechio F, Shapiro AH. 2021. Using Brexit to identify the nature of price rigidities. J. Int. Econ. 130:103448
    [Google Scholar]
  60. Hummels D, Munch JR, Xiang C. 2016. Offshoring and labour markets NBER Work. Pap. 22041
  61. Javorcik B, Stapleton K, Kett B, O'Kane L. 2020. Unravelling deep integration: local labour market effects of the Brexit vote CEPR Discuss. Pap. 14222, Cent. Econ. Policy Perform. London:
  62. Kavetsos G, Kawachi I, Kyriopoulos I, Vandoros S. 2021. The effect of the Brexit referendum result on subjective well-being. J. R. Stat. Soc. Ser. A 184:2707–31
    [Google Scholar]
  63. Lydgate E, Szyszczak E, Winters LA, Anthony C 2021. Taking stock of the UK-EU Trade and Cooperation Agreement: governance, state subsidies and the level playing field Brief. Pap. 54, UK Trade Policy Obs., Univ. Sussex Brighton, UK:
  64. Major LE, Machin S. 2018. Social Mobility and Its Enemies London: Penguin
  65. Manning A. 2021. UK labour shortages and immigration: looking at the evidence. LSE Business Review Sept. 10. https://blogs.lse.ac.uk/businessreview/2021/09/10/uk-labour-shortages-and-immigration-looking-at-evidence/
    [Google Scholar]
  66. Martin J, Martinez A, Mejean I. 2019. The cost of Brexit uncertainty: missing partners for French exporters. IPP Policy Brief 48, Inst. Polit. Publique Paris:
  67. McCann P. 2018. The trade, geography and regional implications of Brexit. Pap. Reg. Sci. 97:13–8
    [Google Scholar]
  68. McGrattan ER, Waddle A. 2020. The impact of Brexit on foreign investment and production. Am. Econ. J. Macroecon. 12:176–103
    [Google Scholar]
  69. Off. Budg. Responsib 2020. Economic and fiscal outlook: March 2020 Rep., Off. Budg. Responsib. London:
  70. Off. Natl. Stat 2021. UK trade: September 2021 Release, Off. Natl. Stat. London: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/september2021
  71. O'Rourke K. 2019. A Short History of Brexit: From Brentry to Backstop London: Penguin
  72. Portes J. 2021. Immigration and the UK economy after Brexit UKICE Work. Pap. 05, UK Chang. Eur., King's Coll. Lond., London:
  73. Powdthavee N, Plagnol AC, Frijters P, Clark AE. 2019. Who got the Brexit blues? The effect of Brexit on subjective wellbeing in the UK. Economica 86:343471–94
    [Google Scholar]
  74. Ramiah V, Pham HN, Moosa I. 2017. The sectoral effects of Brexit on the British economy: early evidence from the reaction of the stock market. Appl. Econ. 49:262508–14
    [Google Scholar]
  75. Sampson T. 2017. Brexit: the economics of international disintegration. J. Econ. Perspect. 31:4163–84
    [Google Scholar]
  76. Sampson T, Dhingra S, Ottaviano G, Van Reenen J. 2016. Economists for Brexit: a critique. CEP Brexit Anal. 6, Cent. Econ. Perform., London Sch. Econ. London:
  77. Serwicka I, Tamberi N. 2018. Not backing Britain: FDI inflows since the Brexit referendum. Brief. Pap. 23, UK Trade Policy Obs., Univ. Sussex Brighton, UK:
  78. Slack J. 2017. Leaving EU customs union could create 400,000 jobs in UK: pro-Brexit Change Britain group argue staying in would prevent the country from making its own free trade agreements. Daily Mail Jan. 2
    [Google Scholar]
  79. Sobolewska M, Ford R 2020. Brexitland: Identity, Diversity and the Reshaping of British Politics Cambridge, UK: Cambridge Univ. Press
  80. Springford J. 2021. The cost of Brexit: February 2021. Centre for European Reform Insights April 13. https://www.cer.org.uk/insights/cost-brexit-february-2021
    [Google Scholar]
  81. Steinberg JB. 2019. Brexit and the macroeconomic impact of trade policy uncertainty. J. Int. Econ. 117:175–95
    [Google Scholar]
  82. Tamberi N. 2021. Export-platform FDI and Brexit uncertainty Work. Pap., Univ. Sussex Bus. Sch. Brighton, UK:
  83. Van Reenen J. 2016. Brexit's long-run effects on the UK economy. Brook. Pap. Econ. Act. 47:2367–83
    [Google Scholar]
  84. Wadsworth J. 2018. Off EU go? Brexit, immigration and the UK labour market. Fiscal Stud 39:4625–49
    [Google Scholar]
  85. Wadsworth J, Dhingra S, Ottaviano GIP, Van Reenen J. 2016. Brexit and the impact of immigration on the UK. CEP Brexit Anal. 5, Cent. Econ. Perform., London Sch. Econ. London:
/content/journals/10.1146/annurev-economics-051420-104231
Loading
/content/journals/10.1146/annurev-economics-051420-104231
Loading

Data & Media loading...

Supplemental Material

Supplementary Data

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error