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Measuring the Regional Economic Cost of Brexit: Evidence up to 2019

Thiemo Fetzer and Shizhou Wang
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Thiemo Fetzer: University of Warwick
Shizhou Wang: University of Warwick

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: The United Kingdom (UK) reported record employment levels following its vote to Leave the European Union (EU), leading to many pundits discarding the dire pre-Brexit vote impact assessments as part of “project fear.” This paper studies the cost of the Brexit-vote to date across UK regions finding significant evidence suggesting that the economic costs of the Brexit-vote are both sizable and far from evenly distributed. Among 382 districts, at least 168 districts appear to be Brexit-vote losers, having lost, on average 8.54 percentage points of output in 2018 compared to their respective synthetic controls. The Brexit-vote costs are increasing in a districts : a) support for Leave in 2016 ; b) the size of its manufacturing sector; c) the share of low skilled. The Brexitvote induced economic divergence across regions is already exacerbating the regional economic inequalities that the 2016 EU referendum vote made apparent. Indirect evidence further suggests that firms may, amidst the significant (trade policy uncertainty, have shifted away from capital to labor in the short term given that Brexit has, to date, not led to changes in market access. The resulting short-term employment - and payroll growth post-2016 is not supported by productivity increases in most parts of the UK. This sets up the possibility for significant labor market adjustments once Brexit becomes a defacto reality. Further, there is some evidence suggesting that COVID19 may exacerbate the regional economic impact of the Brexit-vote to date.

Keywords: Brexit; economic impact; evaluation; trade barriers JEL codes: F6; H2; H3; H5; P16; D7 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-int
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