The uncertainty of Brexit and COVID -19 as factors determining EU exports

Abstract

The repeated risk of the so-called hard Brexit created great uncertainty about the future of mutual EU-UK trade relations. In 2020, the uncertainty was exacerbated by the COVID-19 global pandemic. These critical situations affected the EU's external trade and, in particular, the EU export capacity. Therefore, in addition to the standard factors, such as GDP, labour productivity or the presence of the FTA determining EU exports, this paper examines those factors that were relevant for EU export between 2016 and 2020, i.e. the uncertainty stemming from Brexit and the global COVID-19 pandemic. Fixed and time effects panel data analysis combined with the difference in difference method and a Poisson pseudo-maximum likelihood estimator were used. The negative impact of Brexit uncertainty on EU exports has not been proven. The COVID-19 pandemic, which caused a deep downturn in international trade in 2020, had a negative impact on EU exports. However, EU exports to all partners decreased significantly regardless of the COVID-19 prevalence. This study updates the literature on the nexus between uncertainty and trade by examining the recent critical factors affecting EU export developments.