In a paper published in November and brought to AutoInformed’s attention today by The Hutchins Center on Fiscal and Monetary Policy at the estimable Brookings Institute, angry voters in the United Kingdom who overwhelming approved leaving the European Union in the so-called Brexit* referendum resulted in shrinking the UK GDP by 6% to 8% by 2025. The exhaustive research paper was authored by Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka and Gregory Thwaites.**
The negative economic effects began after the 2016 referendum. They intensified following the UK’s formal exit in 2020. This paper in AutoInformed’s view is directly relevant to Trump’s Tariff Chaos and is a harbinger of still larger negative effects to come.
Herewith the abstract
“This paper examines the impact of the UK’s decision to leave the European Union (Brexit) in 2016. Using almost a decade of data since the referendum, we combine simulations based on macro data with estimates derived from micro data collected through our Decision Maker Panel survey. These estimates suggest that by 2025, Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating gradually over time.
“We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and productivity by 3% to 4%.
“These large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process. Comparing these with contemporary forecasts – providing a rare macro example to complement the burgeoning micro- literature of social science predictions – shows that these forecasts were accurate over a 5-year horizon, but they underestimated the impact over a decade.”
Key Points
- First, the UK’s decision to leave the EU generated a persistent increase in uncertainty, weighing on investment, in particular.
- Second, investment and employment growth were affected by lower expected demand for goods and services.
- Third, productivity growth within firms was affected by lower innovation and IT investment, and by management time and resources being used to prepare for Brexit.
- Finally, productivity growth between-firms was reduced as the more productive, internationally exposed, firms were more negatively impacted.
Last Thoughts and Observations to the Authors
“We see three motivations for this paper.
“First, the UK’s exit from the European Union is a major economic and political event and worth studying directly. The UK is the world’s sixth largest economy and the European Union the world’s largest trading block; no other country has attempted to exit the EU trading bloc.
“Second, the UK’s experience of Brexit has some parallels with the recent implementation of tariffs and immigration controls in the United States. These have both disrupted trade and migration and increased economic policy uncertainty.
“Finally, the recent expansion in the micro-literature of social science predictions (DellaVigna and Pope, 2018) has few parallels in macroeconomics, but the impact of Brexit provides a novel case study, since its impacts were widely predicted by the economics profession on the eve of the vote in May and June 2016, and those forecasts can be benchmarked against their realizations a decade later.”
*AutoInformed on
**National Bureau of Economic Research paper; https://www.nber.org/papers/w34459
About Ken Zino
Ken Zino, editor and publisher of AutoInformed, is a versatile auto industry participant with global experience spanning decades in print and broadcast journalism, as well as social media. He has automobile testing, marketing, public relations and communications experience. He is past president of The International Motor Press Assn, the Detroit Press Club, founding member and first President of the Automotive Press Assn. He is a member of APA, IMPA and the Midwest Automotive Press Assn.
He also brings an historical perspective while citing their contemporary relevance of the work of legendary auto writers such as Ken Purdy, Jim Dunne or Jerry Flint, or writers such as Red Smith, Mark Twain, Thomas Jefferson – all to bring perspective to a chaotic automotive universe.
Above all, decades after he first drove a car, Zino still revels in the sound of the exhaust as the throttle is blipped during a downshift and the driver’s rush that occurs when the entry, apex and exit points of a turn are smoothly and swiftly crossed. It’s the beginning of a perfect lap.
AutoInformed has an editorial philosophy that loves transportation machines of all kinds while promoting critical thinking about the future use of cars and trucks.
Zino builds AutoInformed from his background in automotive journalism starting at Hearst Publishing in New York City on Motor and MotorTech Magazines and car testing where he reviewed hundreds of vehicles in his decade-long stint as the Detroit Bureau Chief of Road & Track magazine. Zino has also worked in Europe, and Asia – now the largest automotive market in the world with China at its center.
Brexit – Angry Voter Costs Greater Than Said. Trump Parallels Abound
In a paper published in November and brought to AutoInformed’s attention today by The Hutchins Center on Fiscal and Monetary Policy at the estimable Brookings Institute, angry voters in the United Kingdom who overwhelming approved leaving the European Union in the so-called Brexit* referendum resulted in shrinking the UK GDP by 6% to 8% by 2025. The exhaustive research paper was authored by Nicholas Bloom, Philip Bunn, Paul Mizen, Pawel Smietanka and Gregory Thwaites.**
The negative economic effects began after the 2016 referendum. They intensified following the UK’s formal exit in 2020. This paper in AutoInformed’s view is directly relevant to Trump’s Tariff Chaos and is a harbinger of still larger negative effects to come.
Herewith the abstract
“This paper examines the impact of the UK’s decision to leave the European Union (Brexit) in 2016. Using almost a decade of data since the referendum, we combine simulations based on macro data with estimates derived from micro data collected through our Decision Maker Panel survey. These estimates suggest that by 2025, Brexit had reduced UK GDP by 6% to 8%, with the impact accumulating gradually over time.
“We estimate that investment was reduced by between 12% and 18%, employment by 3% to 4% and productivity by 3% to 4%.
“These large negative impacts reflect a combination of elevated uncertainty, reduced demand, diverted management time, and increased misallocation of resources from a protracted Brexit process. Comparing these with contemporary forecasts – providing a rare macro example to complement the burgeoning micro- literature of social science predictions – shows that these forecasts were accurate over a 5-year horizon, but they underestimated the impact over a decade.”
Key Points
Last Thoughts and Observations to the Authors
“We see three motivations for this paper.
“First, the UK’s exit from the European Union is a major economic and political event and worth studying directly. The UK is the world’s sixth largest economy and the European Union the world’s largest trading block; no other country has attempted to exit the EU trading bloc.
“Second, the UK’s experience of Brexit has some parallels with the recent implementation of tariffs and immigration controls in the United States. These have both disrupted trade and migration and increased economic policy uncertainty.
“Finally, the recent expansion in the micro-literature of social science predictions (DellaVigna and Pope, 2018) has few parallels in macroeconomics, but the impact of Brexit provides a novel case study, since its impacts were widely predicted by the economics profession on the eve of the vote in May and June 2016, and those forecasts can be benchmarked against their realizations a decade later.”
*AutoInformed on
**National Bureau of Economic Research paper; https://www.nber.org/papers/w34459
About Ken Zino
Ken Zino, editor and publisher of AutoInformed, is a versatile auto industry participant with global experience spanning decades in print and broadcast journalism, as well as social media. He has automobile testing, marketing, public relations and communications experience. He is past president of The International Motor Press Assn, the Detroit Press Club, founding member and first President of the Automotive Press Assn. He is a member of APA, IMPA and the Midwest Automotive Press Assn. He also brings an historical perspective while citing their contemporary relevance of the work of legendary auto writers such as Ken Purdy, Jim Dunne or Jerry Flint, or writers such as Red Smith, Mark Twain, Thomas Jefferson – all to bring perspective to a chaotic automotive universe. Above all, decades after he first drove a car, Zino still revels in the sound of the exhaust as the throttle is blipped during a downshift and the driver’s rush that occurs when the entry, apex and exit points of a turn are smoothly and swiftly crossed. It’s the beginning of a perfect lap. AutoInformed has an editorial philosophy that loves transportation machines of all kinds while promoting critical thinking about the future use of cars and trucks. Zino builds AutoInformed from his background in automotive journalism starting at Hearst Publishing in New York City on Motor and MotorTech Magazines and car testing where he reviewed hundreds of vehicles in his decade-long stint as the Detroit Bureau Chief of Road & Track magazine. Zino has also worked in Europe, and Asia – now the largest automotive market in the world with China at its center.