Before and After Brexit: UMD Research Examines Impact of New Trade Deal

On January 1, the five-year ordeal known as Brexit finally reached a conclusion when a new trade deal between the United Kingdom and European Union officially took effect. However, research led by UMD Economist Nuno Limão shows how years of uncertainty surrounding Brexit has already damaged international trade and explores what this could mean for the future in a post-Brexit world. 

The research spans a series of papers and is summarized in a column published by the Centre for Economic Policy Research (CEPR). Professor Limão and his co-authors specifically examined the period after the Conservative Party won the general election in Britain in May of 2015 until the Brexit referendum passed in June of 2016, signaling the U.K.’s intentions to leave the E.U. They found that as the probability of Brexit increased, the value of traded U.K. goods and services declined significantly.

“Long before any actual policy changes took place, the uncertainty surrounding Brexit was enough to have a seriously negative impact on the U.K. trade with the E.U. in goods and services,” Limão said. “We also found that this spilled over to trade partners outside the E.U.—such as South Korea, Turkey and Israel with which the UK will have to renegotiate current agreements that operated through the EU.”

Although a Brexit agreement has finally arrived, it’s going to take time for firms to learn and adapt to the new rules, meaning the period of uncertainty is far from over, Limão explained.

“Economic leaders need to use this as a lesson for future trade negotiations and understand the consequences of so much uncertainty,” he said.

Co-authors on this research include UMD economics alumni Kyle Handley PhD ’11, now an associate professor at the University of California-San Diego, and Alejandro Graziano PhD ’20, now an assistant Professor at the University of Nottingham.

Published on Tue, Feb 2, 2021 - 11:15AM