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The Brexit vote, productivity growth and macroeconomic adjustments in the U.K

Author

Listed:
  • Broadbent, Ben
  • Di Pace, Federico
  • Drechsel, Thomas
  • Harrison, Richard
  • Tenreyro, Silvana

Abstract

The UK economy experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. To understand these adjustments, this paper presents empirical facts using novel UK macroeconomic data and estimates a small open economy model with tradable and non-tradable sectors. We demonstrate that the referendum outcome can be interpreted as news about a future decline in productivity growth in the tradable sector. An immediate fall in the relative price of non-tradable goods induces a temporary “sweet spot” for tradable producers. Economic activity in the tradable sector expands in the short run, while the non-tradable sector contracts. Aggregate output, consumption and investment growth decelerate.

Suggested Citation

  • Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2024. "The Brexit vote, productivity growth and macroeconomic adjustments in the U.K," LSE Research Online Documents on Economics 118569, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:118569
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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