Financial effects of withdrawal from economic unions: The case of BREXIT

Economic integration in the field of international trade and finance has long been of paramount importance and a focus of extensive research. Yet, the phenomenon known as Brexit, marking the United Kingdom's departure from the European Union, has shifted attention towards the disintegration of unions as a reverse process. Contemporary studies predominantly concentrate on the financial and economic repercussions of exiting an economic union, concurrently employing the post-Brexit dynamics between the United Kingdom and the European Union as a case study. This research aims to explore the ramifications of the Brexit process as a case study in the dissolution of economic unions. To this end, difference in differences and synthetic control methods as analytical techniques have been employed. The investigation was carried out on four primary sample groups, encompassing the United Kingdom, six European Union member states, three European Free Trade Association countries, and three European Union candidate countries. Key macroeconomic and financial indicators such as quarterly gross domestic product, stock prices, interest and exchange rates, investments, and trade metrics were analyzed from 2010 to 2022 to discern the economic and financial impacts of secession. The findings revealed that the disintegration had negative impacts on the United Kingdom, demonstrated by declines in trade volumes, stock index values, the exchange rate of the British Pound, and increases in bond yields. These effects collectively led to an average reduction of 7-8% in the country's gross domestic product. Conversely, for the other sample group of European Union member states examined, the results showed inverse outcomes with increases in gross domestic product, trade, and decreases in bond yields. According to the analysis, the gross domestic product of the selected European Union member states experienced an average increase of 5-6%. Similarly, countries outside the European Union generally exhibited positive changes in the same direction. For the European Union candidate countries, the analyses only observed a positive effect on exports, with other indicators yielding negligible results. Keywords: Brexit, Economic integration, Disintegration, Difference-in-Differences, Synthetic Control Methods.