Brexit and Services Trade New Evidence from Synthetic Diff-in-Diff Approach

Adopting a novel method of synthetic difference in differences (SDID), this paper examines the causal impact of the Brexit referendum on services exports of the UK and other major services exporters. It provides a comparative analysis of the UK, Ireland and Germany, inter alia, and assesses the uneven impact of Brexit on different service sectors and markets. We find long-run, contrasting effects on exports of services in the UK and Ireland in particular. While the UK experienced an annual decline in its services exports by 5.7 percent on average in 2016-2019, Ireland has gained during the same period 14.8 percent per year. There is large heterogeneity in sector effects, which highlights the most affected services exports in Transport, Travel, Insurance, Telecom, and IP sectors. We show that SDID outperforms more traditional difference in difference and synthetic control methods and hence is better placed to understand changes in the UK services trade