Quantifying the Effects of Non-Tariff Barriers on Trade: Evidence from Brexit

Tasks

In this project, we aim to quantify the impact of non-tariff barriers on trade in goods and welfare using Brexit as a policy shock.  We collect new and granular data on the universe of regulatory measures that a UK-firm must fulfill and present at customs when exporting a product to the EU, before and after Brexit. Following the Trade and Cooperation Agreement (TCA) signed between the EU and the UK in December 2020, UK firms face several additional “red tape” barriers to trade, whereas tariffs remain unchanged. Hence, Brexit offers a unique environment to evaluate a sudden increase in NTBs and analyze their effect on trade and welfare.

Methods

For this purpose, we prepare detailed data on the full set of regulatory measures that a UK-firm will need to comply with and present at customs when exporting a product to the EU in the post-Brexit period. We then use these data to quantify a causal effect of the introduction of these nontariff barriers on trade in goods.  To this end, we estimate a gravity model of trade at the product level.  Our identification strategy is designed to compare trade in products subject to non-tariff barriers as a result of Brexit following the conclusion of the TCA within the same industry over time and different countries of origin. This allows us to control for omitted factors that could bias the estimation results, such as Covid-19-related product-specific demand shocks experienced by the importing country.

Data and other sources

Comext by Eurostat and TARIC by European Commission.