Exporters and shocks: Impact of the Brexit vote shock on bilateral exports to the UK

Abstract

This paper exploits the Brexit referendum as a quasi-natural experiment to investigate the effect of exchange rate and uncertainty shocks on export volumes, prices, entry and exit. We use transaction-level export data for the universe of exporters in Portugal. Using monthly observations on export quantity and price for products exported by the same firm to buyers in the UK and in other countries allows us to cleanly identify the differential response to the shock in the UK market. We find that exporters reduce the export volume and export price in the UK market after the referendum shock. We document heterogeneous responses to the shock across exporters. More productive, import-intensive and financially unconstrained exporters react to the shock by decreasing significantly more their export prices to the UK so that their export volumes decrease by less. We also find that goods with higher elasticity of substitution experienced a lower reduction in export price and a higher reduction in export volume. The effects of the shock are significantly larger for durable goods than for non-durable goods. The referendum shock also contributed to deter export entry to the UK market and reduce the probability of continuing to export in the UK.