Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports

45 Pages Posted: 11 Jul 2018 Last revised: 23 Jul 2018

Meredith Crowley

University of Cambridge - Faculty of Economics

Oliver Exton

University of Cambridge - Faculty of Economics

Lu Han

University of Cambridge - Faculty of Economics

Date Written: July 1, 2018

Abstract

The renegotiation of a trade agreement introduces uncertainty into the economic environment. In June 2016 the British electorate unexpectedly voted to leave the European Union, introducing a new era in which the UK and EU began to renegotiate the terms of the UK-EU trading relationship. We exploit this natural experiment to estimate the impact of uncertainty associated with trade agreement re-negotiation on the export participation decision of firms in the UK. Starting from the Handley and Limao (2017) model of exporting under trade policy uncertainty, we derive testable predictions of firm entry into (exit from) a foreign market under an uncertain 'renegotiation regime'. Empirically, we develop measures of the trade policy uncertainty facing firms exporting from the UK to the EU after June 2016. Using the universe of UK export transactions at the firm and product level and cross-sectional variation in 'threat point' tariffs, we estimate that in 2016 over 4000 firms did not enter into exporting new products to the EU, whilst over 2000 firms exited from exporting products to the EU. Entry (exit) in 2016 would have been 5.1% higher (3.0% lower) if firms exporting from the UK to the EU had not faced increased trade policy uncertainty after June 2016.

Suggested Citation

Crowley, Meredith and Exton, Oliver and Han, Lu, Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports (July 1, 2018). Society of International Economic Law (SIEL), Sixth Biennial Global Conference. Available at SSRN: https://ssrn.com/abstract=3211689 or http://dx.doi.org/10.2139/ssrn.3211689

Meredith Crowley (Contact Author)

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://https://meredithcrowley.weebly.com/

Oliver Exton

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Lu Han

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

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