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 a UK output loss of 1.7-2.5 percent by year-end 2018. An expectations-augmented VAR suggests that these costs are to a large extent driven 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, 129 (10), pp. 2722–2744