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The Costs of Economic Nationalism: Evidence from the Brexit Experiment

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  • Benjamin Born
  • Gernot J Müller
  • Moritz Schularick
  • Petr Sedláček

Abstract

Economic nationalism is on the rise, but at what cost? We study this question using the unexpected outcome of the Brexit referendum vote as a natural macroeconomic experiment. Employing synthetic control methods,we first show that the Brexit vote has caused a UK output loss of 1.7% to 2.5% by year-end 2018. An expectations-augmented VAR suggests that these costs are, to a large extent, driven by a downward revision of growth expectations in response to the vote. Linking quasi-experimental identification to structural time-series estimation allows us not only to quantify the aggregate costs but also to understand the channels through which expected economic disintegration impacts the macroeconomy.

Suggested Citation

  • Benjamin Born & Gernot J Müller & Moritz Schularick & Petr Sedláček, 2019. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," Economic Journal, Royal Economic Society, vol. 129(623), pages 2722-2744.
  • Handle: RePEc:oup:econjl:v:129:y:2019:i:623:p:2722-2744.
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    File URL: http://hdl.handle.net/10.1093/ej/uez020
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    References listed on IDEAS

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    7. Connell, William & Simons, Wouter & Vandenbussche, Hylke, 2017. "Global Value Chains, Trade Shocks And Jobs: An Application to Brexit," CEPR Discussion Papers 12303, C.E.P.R. Discussion Papers.
    8. Vikash Ramiah & Huy N. A. Pham & Imad Moosa, 2017. "The sectoral effects of Brexit on the British economy: early evidence from the reaction of the stock market," Applied Economics, Taylor & Francis Journals, vol. 49(26), pages 2508-2514, June.
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