Global Competition and Brexit

Abstract

We show that support for the Leave option in the Brexit referendum was systematically higher in regions hit harder by economic globalization. We focus on the shock of surging imports from China over the past three decades as a structural driver of divergence in economic performance across U.K. regions. An IV approach supports a causal interpretation of our finding. We claim that the effect is driven by the displacement determined by globalization in the absence of effective compensation of its losers. Neither overall stocks nor inflows of immigrants in a region are associated with higher support for the Leave option. A positive association only emerges when focusing on immigrants from EU accession countries. The analysis of individual data suggests that voters respond to the import shock in a sociotropic way, as individuals tend to react to the general economic situation of their region, regardless of their specific condition.