The cost of Brexit-related uncertainty: fewer customers for French exporters.

Summary More than three years after the unexpected outcome of the June 2016 Brexit vote, no exit agreement has yet been signed between the United Kingdom and the European Union. The conditions under which the Brexit will take place and their economic consequences are still unknown, but the referendum is already having measurable effects on the real economy.The vote and the lengthy negotiations that followed represent a lasting shock of uncertainty, which has affected business investment decisions. In this note we use detailed trade data before and after the vote to measure the effect of the vote on French exports to the UK. We show that the referendum had on average no effect on the value of exports but reduced the growth of exports in sectors such as transport equipment or chemicals that are placed furthest upstream in value chains. The number of new trade relationships involving French exporters and British importers declined significantly after the Brexit vote, compared to other destinations. The uncertainty shock appears to have reduced French firms' investment in business development, which will likely penalize exporters in the future. These results suggest that uncertainty represents a real cost. Any decision to postpone Brexit must take into account not only the possibility of getting a better deal but also the economic cost of prolonging uncertainty. It is also important that the future trade agreement between the United Kingdom and the EU installs a trade policy that European exporters can anticipate, and that the agreement ensures stability.