Has the Brexit Vote Affected the United Kingdom's Largest Trading Partners?

Abstract

On June 23, 2016, United Kingdom (UK) voters decided to leave the European Union (EU), thereby starting a process commonly known as Brexit. British Prime Minister Theresa May invoked EU Article 50 on March 29, 2017. The invocation of EU Article 50 puts the UK on a course to leave the EU by the end of March 2019. Meanwhile, the UK remains a full member of the European Union. Since the Brexit vote, there have been several extremely pessimistic predictions of the economic and political effects of the UK’s exit from the EU. For example, the London School of Economics’ Center for Economic Performance forecast a loss in UK Gross Domestic Product (GDP) of from 2.3%-9.5% and a decrease in UK trade. The major economic impact of Brexit to date is the decline in the value of the British Pound (GBP), which has fallen from USD $1.467 on June 20, 2016 to $1.204 on January 16, 2017. A decline in the value of a country’s currency means that its products will be less expensive on the world market. Ceteris paribus, a decline also decreases a country’s unemployment rate and its citizens will pay more for imported goods. I collect data on the UK and its ten largest trading partners to determine whether those eleven countries have been harmed by the Brexit vote. These countries are: Belgium, China, France, Germany, Ireland, Italy, the Netherlands, Spain, the United Kingdom, and the United States. For each country, I estimate the effect of Brexit on exchange rates, GDP, unemployment, and other macroeconomic and political variables.