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Other research product . Other ORP type . 2019

The cost of Brexit uncertainty: missing partners for French exporters

Martin, Julien; Martinez, Alejandra; Mejean, Isabelle;
Published: 01 Dec 2019
Publisher: HAL CCSD
Country: France
International audience; More than three years after the unexpected Brexit vote of June 2016, there is still no exit agreement between the United Kingdom and the European Union. Although the conditions of Brexit and the corresponding economic consequences are still unknown, the referendum has already had a real economic impact. The long discussion surrounding Brexit can be seen as a long-lasting uncertainty shock, whiach has affected firms’ investment decisions.In this note we use highly detailed customs data before and after the vote to measure the impact of Brexit on French firms’ exports to the UK. We find that the referendum had no effect on average on the value of exports but depressed export growth in sectors such as transportation or chemical industries which are more upstream in value chains. The number of new trade relationships involving French exporters and British importers has significantly declined after the Brexit vote, in comparison with other destinations. This is consistent with the uncertainty shock reducing French firms’ investment in their customer base, which is likely to penalize French exporters in the future. These results are suggestive evidence that uncertainty has a real cost and that any decision of delaying the Brexit further should compare the benefit of reaching a better deal with the economic cost induced by uncertainty. It is also important that the next EU-UK trade agreement should guarantee the stability and predictability of the trade policy that European exporters will have to face.

[SHS.ECO]Humanities and Social Sciences/Economics and Finance

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Bloom, Nicholas, Philip Bunn, Scarlet Chen, Paul Mizen, Pawel Smietanka, and Gregory Thwaites (2019). The Impact of Brexit on UK Firms. Working Paper 26218. National Bureau of Economic Research. 9A nice illustration of this principle can be found in Handley and Limão (2017). The authors show that trade barriers for Chinese firms exporting to the US have not decreased after China entered the World Trade Organization because the country was already enjoying the “MostFavored Nation” status before its entry. Still, the trade agreement has had a massive impact on Chinese exports to the US. The reason is that, after entry, Chinese exporters were no longer at threat of losing this status as was the case before, when the Congress was voting each year over this status.

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Funded by
Réguler l'économie au service de la société
  • Funder: French National Research Agency (ANR) (ANR)
  • Project Code: ANR-11-LABX-0047
Firm-to-Firm Trade Networks
  • Funder: European Commission (EC)
  • Project Code: 714597
  • Funding stream: H2020 | ERC | ERC-STG