The economics of Brexit: Pre-referendum videos and columns

Richard Baldwin 12 July 2016

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Two weeks ago, UK voters took the most important economic decision in a generation. The factual basis for this decision was – to say the least – not quite up to the nation’s highest standards of evidence. In a country that spends millions of pounds to establish a factual basis for the “where do we build a runway” decision, the factual basis for the Brexit decision was derisory. And this seems to have mattered.

The Lord Ashcroft poll, for instance, reports that more than two thirds of Leave voters thought the decision “might make us a bit better or worse off as a country, but there probably isn’t much in it either way” (Ashcroft 2016). By contrast, more than three quarters of those who voted to remain thought “the decision we make in the referendum could have disastrous consequences for us as a country if we get it wrong”.

The fragmented nature of this “factual basis” arose despite an impressive, if uncoordinated, effort by the economics profession to study the question. Particularly noteworthy were the various studies by the LSE’s Centre for Economic Performance (e.g. Breinlich et al. 2016), the National Institute of Economic and Social Research (e.g. Baker et al. 2016), and the Centre for European Reform (e.g. Springford et al. 2016). And of course the Treasury produced several economic studies of the short- and long-run effects, the impact on public finances and on pensions.

This is my favourite quote from the Treasury study on the immediate impacts (HM Government 2016):

“A vote to leave would cause an immediate and profound economic shock creating instability and uncertainty which would be compounded by the complex and interdependent negotiations that would follow. The central conclusion of the analysis is that the effect of this profound shock would be to push the UK into recession and lead to a sharp rise in unemployment.”

While it is too early to judge the recession and unemployment predictions, an “immediate and profound economic shock creating instability and uncertainty” could not have been more right. The shock was so profound that it created turmoil in UK politics of the type that is hard for outsiders to comprehend.

But the Treasury was not alone in this view. The Centre for Macroeconomics’ June survey of UK economists (conducted before the vote) found an unprecedented level of agreement that Brexit would have bad consequences, at least in the short and medium run, marking “the first time since this survey began that one side of the argument is supported by none of the respondents” (Den Haan et al. 2016). The survey participants believed that “Brexit would lead to a significant disruption to financial markets and asset prices for several months, putting the Bank of England on high alert.”

The consensus was so strong that NIESR Director, Jagjit Chadha, wrote a Vox column titled “When experts agree: How to take economic advice over the referendum” on 16 June 2016. Indeed, Vox posted many columns and videos before the vote laying out the likely economic impact. It is hard to say how much influence these had, but recall that about three out of four Remain voters understood that Brexit would entail economic costs.

Vox columns on Brexit: Getting research into the hands of decision makers

The following covers the highlights of our pre-Brexit efforts to disseminate the findings to a wider audience. I start with the columns that summarised substantial original research on the economic impact of Brexit undertaken by leading economists.

This column studied how changes in trade and fiscal transfers to the EU following Brexit would affect living standards in the UK. Across a range of scenarios, Brexit would lead to lower income per capita, but the magnitude of the loss depends on what trade policies the UK adopts post-Brexit.

This column argued that EU membership has brought benefits through three key mechanisms – trade, foreign investment, and finance. The current focus on UK exports to and imports from the EU may severely underestimate the true potential costs to the UK of Brexit.

This column took stock of new research presented at a recent conference on the UK-EU relationship.

Using a meta-analysis, this column showed how the conflicting results of studies attempting to quantify the economic effects of Brexit for the UK can be explained by different methods and assumptions, as well as varying coverage of effects. The meta-analysis suggested that in case of Brexit, GDP losses for the UK in the range of 10% or more could not be ruled out in the long run.

This column argued that Brexit could have serious economic and political consequences for the rest of the EU. The economic and financial frictions could be limited if both parties try to strike an amicable separation agreement. But political considerations, including the desire of the rest of the EU to prevent Brexit emulation, might result in a far more damaging outcome, not just for the UK.

Video Vox on Brexit

Vox launched a new feature, Video Vox, about a month before the referendum. Video Vox brings together professionally edited videos, between two and four minutes long, that seek to explain serious research in an accessible manner to an audience that could be described as people who do, or might, read The Economist newspaper.

The videos are necessarily narrower than Vox columns, since the average English speaker gets through only about 150 words per minute while the average Vox column is about 1,500 words long.

The economic impact

One of the most popular and broadest Vox Videos on the economic impact was from Nauro Campos, who looked at the economic benefits of EU membership and argued that the UK is 24% better off since joining in 1973:

  • “Economic benefits of EU membership” with Nauro Campos (22 May 2014)

In the same vein were two Vox Videos recorded after the Royal Economic Society's panel on Brexit.

John Van Reenen discussed how much Brexit would hurt the UK economy, but also pointed out that it would bring some gains in the form of lower EU contributions and a slight boost to growth:

  • “Economic costs and benefits of Brexit” with John Van Reenen (30 March 2016)

Swati Dhingra focused on the issue of trade, investment and immigration:

  • “Brexit: The likely trade, investment and migration implications” with Swati Dhingra (30 March 2016)

A more historical view of the benefits of EU membership to the UK economy was presented by Nicholas Crafts, who discussed how the type of agreement the UK would reach outside the EU is most important and argued that the risks outweigh the potential gains:

  • “The Economics of the UK-EU Relationship” with Nicholas Crafts (15 June 2016)

Karl Whelan focused on the impact on the UK financial sector, including the impact of the UK losing its voice in shaping future legislation:

  • “Nothing about Brexit is simple” with Karl Whelan (20 June 2015)

Angus Armstrong developed this theme with a focus on financial services trade and asked how the current UK financial infrastructure contrasts with how it might look post-Brexit:

  • “Financial services and Brexit” with Angus Armstrong (14 June 2016)

Options outside the EU

Another set of Vox Videos focused on what the UK would face if it left the EU. This is where my own entry came in, in which I argued that Leave voters hoping to regain control over economic policy would instead effect an own goal:

  • “Brexit would be a sovereignty own-goal” with Richard Baldwin (30 March 2016)

Enrico Spolaore adopted a political economy angle to discuss the impact on European integration:

  • “The real trade-off: The political economy of EU membership” with Enrico Spolaore (30 March 2016)

Finally, Anatole Kaletsky argued that Brexit would be economic self-harm since a trade agreement that grants access to the Single Market implies conceding political sovereignty, contributing to the EU budget, and free movement of labour:

  • “The UK’s EU Membership” with Anatole Kaletsky (22 June 2016)

References

Ashcroft, M. (2016), “How the United Kingdom voted on Thursday… and why”, 24 June. 

Baker, J., O. Carreras, S. Kirby, J. Meaning and R. Piggott (2016), “Modelling events: the short-term economic impact of leaving the EU”, NIESR Discussion Paper. 

Breinlich, H., S. Dhingra, S. Estrin, H. Huang, G. Ottaviano, T. Sampson, J. Van Reenen and J. Wadsworth (2016), “BREXIT 2016: Policy Analysis from the Centre for Economic Performance”, Centre for Economic Performance. 

den Haan, W., M. Ellison, E. Ilzetzki, M. McMahon and R. Reis (2016), “Brexit: The potential for a financial catastrophe and long-term consequences for the UK financial sector”, VoxEU.org, 20 June. 

HM Government (2016), “HM Treasury analysis: the immediate economic impact of leaving the EU”. 

Springford, J., S. Tilford, C. Odendahl and P. McCann (2016), The Economic Consequences of Leaving the EU: The Final Report of the CER Commission On Brexit 2016, Centre for European Reform. 

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Topics:  Europe's nations and regions

Tags:  Brexit, VoxEu.org, Vox Videos, EU referendum, UK

Professor of International Economics at The Graduate Institute, Geneva; Founder & Editor-in-Chief of VoxEU.org; exPresident of CEPR

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