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

38 Pages Posted: 15 Jan 2019 Last revised: 21 Jan 2019

See all articles by Meredith Crowley

Meredith Crowley

University of Cambridge - Faculty of Economics

Oliver Exton

University of Cambridge - Faculty of Economics

Lu Han

University of Liverpool Management School

Date Written: January 2019

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 renegotiation 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 5300 exporters did not enter into exporting new products to the EU, whilst over 5400 exporters exited from exporting products to the EU. Entry (exit) in 2016 would have been 5.0% higher (6.1% lower) if firms exporting from the UK to the EU had not faced increased trade policy uncertainty after June 2016.

Keywords: export participation, extensive margin of trade, Trade agreement, Trade policy uncertainty

JEL Classification: F13, F14

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 (January 2019). CEPR Discussion Paper No. DP13446, Available at SSRN: https://ssrn.com/abstract=3315380

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 Liverpool Management School ( email )

HOME PAGE: http://https://luhan.io

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
0
Abstract Views
426
PlumX Metrics