The Costs of Economic Nationalism: Evidence from the Brexit Experiment


Economic nationalism is on the rise, but at what cost? We study this question using the unexpected outcome of the Brexit vote as a natural macroeconomic experiment. Employing synthetic control methods, we first show that the Brexit vote has caused an output loss of about 2.4 percent by year-end 2018. An expectations-augmented VAR reveals that these costs are to a large extent caused by a downward revision of growth expectations in response to the vote. Linking quasi-experimental identification to structural time-series estimation allows us to not only quantify the aggregate costs but also to understand the channels through which expected economic disintegration impacts the macroeconomy.

Economic Journal, conditionally accepted