The Economic Consequences of Brexit

A Conversation With Swati Dhingra

Swati Dhingra

  • Country: United Kingdom
  • Title: Assistant professor of economics, London School of Economics
  • Education: University of Wisconsin-Madison

Before Britons voted to leave the European Union, Swati Dhingra, an assistant professor of economics at the London School of Economics, wrote a series of papers with her colleagues trying to convince them otherwise by pointing to the economic consequences. Two weeks after the voters chose Brexit, Dhingra spoke with Foreign Affairs deputy managing editor Stuart Reid in London.

Were you surprised at the immediate financial turmoil after the vote?

Not at all, because we had already seen that the turmoil actually started a bit before, in terms of the real business activity. Recruitment companies weren’t hiring very much. Seventeen percent of the 340 companies that were surveyed recently said that they were on a hiring freeze. Another 25 percent said that they were only doing short-term contracts. Mergers and acquisitions were down 70 percent compared to last year. So in that sense, we were already seeing real business activity come to a standstill. And the uncertainty index developed by Nick Bloom at Stanford University was at its 19-year high, higher than what we saw during the Scottish referendum, during the global financial crisis, and [after] the September 11 attacks.

Break down the economic consequences of Brexit.

At the moment, Britain is a member of the single market as a member of the European Union, which means we have free trade in goods, services, free movement of people and capital. And all of those are coming into question, because the default is WTO membership, which would come into play if we don’t negotiate anything else in the meantime with the European Union regarding the single market.

So what does that mean? That’s going to mean that we’re no longer going to have tariff-free access to the European Union market. We’re not going to be able to do business with the European Union with the same ease that we do now. And the reason that’s important is that 50 percent of U.K. trade and investment comes from the European Union.

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