DP12454 The Economic Consequences of the Brexit Vote
|Author(s):||Benjamin Born, Gernot Müller, Moritz Schularick, Petr Sedlacek|
|Publication Date:||November 2017|
|Keyword(s):||Brexit, European Union, policy uncertainty, synthetic control method|
|JEL(s):||E65, F13, F42|
|Programme Areas:||International Macroeconomics and Finance, Monetary Economics and Fluctuations|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=12454|
This paper introduces a data-driven, transparent and unbiased method to calculate the economic costs of the Brexit vote in June 2016. We let a matching algorithm determine a combination of comparison economies that best resembles the growth path of the UK economy before the Brexit referendum. The economic cost of the Brexit vote is the difference in output between the UK economy and and its synthetic doppelganger. We show that, contrary to public perception, by the third quarter of 2017 the economic costs of the Brexit vote are already 1.3% of GDP. The cumulative costs amount to almost 20 billion pounds and are expected to grow to more than 60 billion pounds by end-2018. We provide evidence that heightened policy uncertainty has already taken a toll on investment and consumption.