German Exports to the UK: the Effect of Disintegration

The United Kingdom withdrew from the European Union on 31 January 2020. According to the theory of customs unions, when a country leaves a regional organization, its trade flows divert from its former partners. In this study, the author tests this theory on the example of German merchandise exports to the UK to identify and quantify Brexit effects on the relevant trade flows. The existing literature describes the effects of Brexit on the UK itself, not the EU countries. The author has proposed a two-stage approach to this issue. First, the author analyses dynamics of German merchandise exports to its major trade partners within the past two decades with significant countries. Then correlation analysis was conducted to compare the synchronicity of the monthly changes of value indicators of German exports to the UK with similar indicators of German exports to other countries, as well as with the dynamics of the UK imports from other regions of the world. By carefully examining the data, it is found that the UK's exit from the European Union has already had a significant deterrent effect on merchandise exports from Germany to the UK. The study indicates that disintegration negatively affects the resilience of trade flows to external shocks.