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New dawn fades: Trade, labour and the Brexit exchange rate depreciation

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  • Costa, Rui
  • Dhingra, Swati
  • Machin, Stephen

Abstract

This paper studies consequences of the large exchange rate depreciation occurring when the UK electorate unexpectedly voted to leave the European Union. Sterling plummeted, recording the biggest one-day depreciation of any of the world's four major currencies since Bretton Woods. The prospect of Brexit happening generated sizable differences in how much sterling depreciated against different currencies. Coupled with pre-referendum cross-country trade patterns, this generated variations in exchange rates facing businesses in different industries. The paper offers evidence of a cost shock from the prices of intermediate imports rising by more in higher depreciation industries, but with no revenue offset from exports. Workers were impacted by these increased cost pressures, not in terms of job loss but through relative real wage declines in higher depreciation, larger cost shock industries. This resulted in an aggregate fall in real wage growth of 3 to 3.6% cumulatively over the three years after the referendum.

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  • Costa, Rui & Dhingra, Swati & Machin, Stephen, 2024. "New dawn fades: Trade, labour and the Brexit exchange rate depreciation," Journal of International Economics, Elsevier, vol. 152(C).
  • Handle: RePEc:eee:inecon:v:152:y:2024:i:c:s002219962400120x
    DOI: 10.1016/j.jinteco.2024.103993
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    Cited by:

    1. Costa, Rui & Dhingra, Swati & Machin, Stephen, 2024. "New dawn fades: Trade, labour and the Brexit exchange rate depreciation," Journal of International Economics, Elsevier, vol. 152(C).
    2. Castro-Pires, Henrique & Mello, Marco & Moscelli, Giuseppe, 2023. "Foreign Nurses and Hospital Quality: Evidence from Brexit," IZA Discussion Papers 16616, Institute of Labor Economics (IZA).
    3. Zara Liaqat, Karrar Hussain, 2025. "Costly Imports: Exchange rate shocks and trade misreporting by firms," LCERPA Working Papers jc0154, Laurier Centre for Economic Research and Policy Analysis, revised 2025.

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    More about this item

    Keywords

    Brexit; Exchange rate depreciation; Trade prices; Labour outcomes;
    All these keywords.

    JEL classification:

    • J46 - Labor and Demographic Economics - - Particular Labor Markets - - - Informal Labor Market
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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