Who bears the costs of Brexit? A regional perspective

• Thesis title in Czech: Dopady Brexitu na Britské regiony
• Thesis title in English: Who bears the costs of Brexit? A regional perspective
• Academic year of topic announcement: 2020/2021
• Thesis type: diploma thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: PhDr. Jaromír Baxa, Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 30.06.2021
• Date of assignment: 30.06.2021
• Date and time of defence: 01.02.2023 09:00
• Venue of defence: Opletalova - Opletalova 26, O109, AULA Michala Mejstříka č. 109
• Date of electronic submission: 01.01.2023
• Date of proceeded defence: 01.02.2023
• Opponents: Matěj Bajgar, D.Phil.

Guidelines

Motivation:
The unexpected results of the 2016 Brexit referendum created arguably the most important structural change in the UK in 21. century. The first mainstream predictions on the development of GDP and life quality from Her Majesty Treasury (2016a,2016b) and OECD (2016) were quite pessimistic in comparison with future development. Couts (2018) argues that these overestimations of Brexit costs come from the wrong use of modeling and over-valuation of uncertainty.
The modeling of Brexit was no easy task, moreover when there was no exact deal written down at the time of the referendum. The long negotiations, multiple extensions, and agreements were forging the specific results of the referendum differently very often through the last 5 years. Besides the obvious impact on the deal, it varied the expectation and uncertainty of the market. To be able to talk about Brexit's impact, we have to view its longer complex process and identify which date or step is the most important.
Furthermore, the UK is a quite heterogeneous country and it is very polarized in political views, similar to other western countries in the current era. This polarization has reflected also on narrow Brexit referendum results. Alabrese (2018) explores how the voters for remain and to leave respectively had a distinctive pattern of education, age, and ethnicity which made it simple to predict the location results retrospectively.
Different setups in regions could also provide an environment for the different impacts of Brexit. For instance, McCombie (2018) hints out that Brexit will widen the regional disparities. As the “Leave” regions are mostly poorer, it could lead to a rather bizarre conclusion that the worse off after Brexit in economic terms is its supporters.
All in all the unsuccessful predictions and complex Brexit process requires a different approach. Such an approach could hint out which part of the international trade process possesses the most influence. Moreover, the regional dimension is necessary for a closer explanation of anti-globalist policies and their impact on their supporters.

Hypotheses:
1. Hypothesis #1: The post-referendum agreements and negotiation events impact was significant on GDP and Unemployment
2. Hypothesis #2: The impact of Brexit was significantly different among British regions
3. Hypothesis #3: The impact of Brexit was regionally correlated with referendum results

References

Abadie, A., Diamond, A. and Hainmueller, J. (2010). ‘Synthetic control methods for comparative case studies: estimating the effect of California’s tobacco control program’, Journal of the American Statistical Association, vol. 105(490), pp. 493–505.

Abadie, A. and Gardeazabal, J. (2003). ‘The economic costs of conflict: a case study of the Basque country’, American Economic Review, vol. 93(1), pp. 113–32.

Abadie, A., Diamond, A. and Hainmueller, J. (2015). ‘Comparative politics and the synthetic control method’, American Journal of Political Science, vol. 59(2), pp. 495–510.

Her Majesty's Treasury (HMT) (2016a). HM Treasury analysis: The long‐term economic impact of EU membership and the alternatives. Her Majesty's Government, CM 9250, April, London.

Her Majesty's Treasury (HMT) (2016b). HM Treasury analysis: The immediate economic impact of leaving the EU. Her Majesty's Government, CM 9292, May, London.

Organisation for Economic Co‐operation and Development (OECD) (2016). The economic consequences of Brexit: A taxing decision. OECD Economic Policy Papers, No 16, OECD, Paris.

Benjamin Born & Gernot Müller & Moritz Schularick & Petr Sedláček, 2017. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," CESifo Working Paper Series 6780, CESifo.

Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson 2020 Voting with their money: Brexit and outward investment by UK firms, European Economic Review, Volume 124,

Ken Coutts & Graham Gudgin & Jordan Buchanan, 2018. "How the Economics Profession Got It Wrong on Brexit," Working Papers wp493, Centre for Business Research, University of Cambridge.

McCombie, JSL, Spreafico, MRM. Brexit and its possible implications for the UK economy and its regions: A post-Keynesian perspective. Pap Reg Sci. 2018; 97: 133– 149. https://doi.org/10.1111/pirs.12338

Eleonora Alabrese, Sascha O. Becker, Thiemo Fetzer, Dennis Novy,Who voted for Brexit? Individual and regional data combined, European Journal of Political Economy, Volume 56, 2019, Pages 132-150, ISSN 0176-2680,

Preliminary scope of work

Methodology:
At first, I shall collect more studies about the Brexit process, the most significant steps, and their background. The detailed overview of pre-referendum dynamics and votes will be followed with a deep-dive in to scholars that measured the Brexit impact.

Further for my own estimation, I shall use the Synthetic control method created and further developed by Abadie (2003, 2010, 2015). This method's aim is to estimate the impact of specific treatment on a specific unit by the creation of this unit counterfactual. It is very suitable for the case of Brexit as a specific treatment that none different EU member country was exposed to. Furthermore, some scholars already applied it to this topic (Born 2017, Breinlich 2020). The method is suitable also for regional detail as the synthetic units of the UK can be consisted from the Eurostat NUTS database.

Expected Contribution:
The application of SCM in various dimensions (time and regional level) will provide new insights into Brexit and international trade that have not been revealed in previous scholar's work. As mentioned, the SCM has not been applied for the regional level yet. And to my knowledge there is no econometric publication, analyzing the Brexit steps in optics of its economic impact.