Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports

Meredith Crowley, Oliver Exton and ,
Authors registered in the RePEc Author Service: Lu Han

No 13446, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The renegotiation of a trade agreement introduces uncertainty into the economic environment. In June 2016 the British electorate unexpectedly voted to leave the European Union, introducing a new era in which the UK and EU began to renegotiate the terms of the UK-EU trading relationship. We exploit this natural experiment to estimate the impact of uncertainty associated with trade agreement renegotiation on the export participation decision of firms in the UK. Starting from the Handley and Limao (2017) model of exporting under trade policy uncertainty, we derive testable predictions of firm entry into (exit from) a foreign market under an uncertain `renegotiation regime'. Empirically, we develop measures of the trade policy uncertainty facing firms exporting from the UK to the EU after June 2016. Using the universe of UK export transactions at the firm and product level, and cross-sectional variation in `threat point' tariffs, we estimate that in 2016 over 5300 exporters did not enter into exporting new products to the EU, whilst over 5400 exporters exited from exporting products to the EU. Entry (exit) in 2016 would have been 5.0% higher (6.1% lower) if firms exporting from the UK to the EU had not faced increased trade policy uncertainty after June 2016.

Keywords: Trade policy uncertainty; Trade agreement; Export participation; Extensive margin of trade (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-bec, nep-eec and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports (2018)
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