The impact of Brexit on the UK inwards FDI
|Title:||The impact of Brexit on the UK inwards FDI|
Vol 3 No 1 (2018)
Published date: 27-04-2018 (print) / 27-04-2018 (online)
Economics, Management and Sustainability
Institute for Economic Forecasting of the Romanian Academy, Centre for Migration Studies in Prague Business School, Global Labor Organization
|Keywords:||Brexit, foreign direct investment, FDI projects, Poisson model, differences-in-differences estimator|
|JEL classification:||C51, C53, F21|
Considering the impact of Brexit on the foreign direct investment (FDI) in the United Kingdom, contrary to previous studies from economic literature, this research focused on two proxies for FDI: FDI projects with the associated new and safeguarded jobs and FDI inflows as percent of GDP. Moreover, other methods were used to measure the Brexit impact on the FDI: a gravity model approach based on mixed-effects Poisson models and a counterfactual analysis based on differences-to-differences estimators. The main results indicated that the number of FDI projects might decrease after Brexit by 65% till 90% in 2019. A higher increase by 97% is expected to the number of new and safeguarded jobs. Even if FDI inflows in the UK significantly increased compared to the rest of OECD countries because of the EU membership, Great Britain should follow the model of Norway and Iceland after Brexit in order to avoid significant losses in the FDI inflows.
1. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: the role of local financial markets. Journal of International Economics, 64(1), 89-112.
2. Allison, P. D., & Waterman, R. P. (2002). Fixed–effects negative binomial regression models. Sociological Methodology, 32(1), 247-265.
3. Barrell, R., & Pain, N. (1997). Foreign direct investment, technological change, and economic growth within Europe. The Economic Journal, 107(445), 1770-1786.
4. Barrett, A. et al., (2015). Scoping the Possible Economic Implications of Brexit on Ireland. The Economic and Social Research Institute (ESRI), Research Series, No. 48, Dublin
5. Barrett, A., Bergin, A., FitzGerald, J., Lambert, D., McCoy, D., Morgenroth, E. & Studnicka, Z. (2015). Scoping the possible economic implications of Brexit on Ireland. ESRI Research Series, 48.
6. Benito, G. R., & Grünfeld, L. A. (2011). Inward FDI in Norway and its policy context. Retrieved from http://academiccommons.columbia.edu/catalog/ac:135214
7. Bertrand, M., Duflo, E., & Mullainathan, S. (2002). How much should we trust differences-in-differences estimates? (No. w8841). National Bureau of Economic Research.
8. Bloom, N., Sadun, R., & Van Reenen, J. (2012). Americans do IT better: US multinationals and the productivity miracle. The American Economic Review, 102(1), 167-201.
9. Bruno, R., Campos, N., Estrin, S., Tian, M. (2016). Gravitating towards Europe: An econometric analysis of the FDI effects of EU membership. CEP Technical Paper, Brexit Analysis No 3.
10. Campos, N. F., & Coricelli, F. (2015). Some unpleasant Brexit econometrics. Retrieved 05.07.2016 from http://www.voxeu.org/article/some-unpleasant-brexit-econometrics
11. Crafts, N. (2016). The Growth Effects of EU Membership for the UK: a Review of the Evidence (No. 280). Competitive Advantage in the Global Economy (CAGE), Global Perspectives Series: Paper 7.
12. Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. Centre for Economic Performance (CEP), London School of Economics and Political Science (LSE).
13. Driffield, N., & Karoglou, M. (2016). Brexit and Foreign Investment in the UK. Available at SSRN 2775954. Retrieved 05.07.2016 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2775954
14. Dunning, J. H. (1997). The European internal market programme and inbound foreign direct investment. JCMS: Journal of Common Market Studies, 35(2), 189-223.
15. Ebell, M., & Warren, J. (2016). The long-term economic impact of leaving the EU. National Institute Economic Review, 236(1), 121-138.
16. El-Sayyad G. M. (1973). Bayesian and classical analysis of Poisson regression. Journal of the Royal Statistical Society, Series B: Methodological, 3, 445–451.
17. Featherstone, K. (2016). External perspectives on the UK’s membership of the European Union: report of the hearing held on 1st March, 2016. The London School of Economics and Political Science, European Institute, London, UK. Retrieved from http://eprints
18. Gibbons, R. D., Segawa, E., Karabatsos, G., Amatya, A. K., Bhaumik, D. K., Brown, C. H., & Mann, J. J. (2008). Mixed‐effects Poisson regression analysis of adverse event reports: The relationship between antidepressants and suicide. Statistics in medicine
19. Greene, William H. (2002). Econometric Analysis.New York, NY: Prentice Hall.
20. Harvey, D., & Hubbard, C. (2016). Why Brexit?. Centre for Rural Economy Discussion Paper Series No. 35.
21. Haskel, J. E., Pereira, S. C., & Slaughter, M. J. (2007). Does inward foreign direct investment boost the productivity of domestic firms?. The Review of Economics and Statistics, 89(3), 482-496.
22. Hsiao, C. (2003). Analysis of panel data, 2nd. Cambridge: Cambridge University Press.
24. http://www.cpb.nl/sites/default/files/publicaties/download/internal-market-and-dutch-economy-implications-trade-and-economic-growth.pdf Retrieved 01.07.2016 from
25. Irwin, G. (2015). BREXIT: the Impact on the UK and the EU. Global Council, London. Retrieved from https://www.global-counsel.co.uk/sites/default/files/special-reports/downloads/Global%20Counsel_Impact_of_Brexit.pdf
26. Kierzenkowski, R., Pain, N., Rusticelli, E., & Zwart, S. (2016). The Economic Consequences of Brexit, OECD Economic Policy Papers, 16, 1-37.
27. Mansfield, I. (2014). A Blueprint for Britain: Openness not Isolation. Institute of Economic Affairs. London. Retrieved 01.07.2016 from http://www.iea.org.uk/sites/default/files/publications/files/Brexit%20Entry%20170_final_bio_web.pdf
28. McGrath, P. (2016). Brexit and Likely Implications for Ireland. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2758850
29. Meyer, B. (1995). Natural and Quasi-Natural Experiments in Economics. Journal of Business and Economic Statistics, XII, 151-162.
30. Pain, N., & Pickering, J. F. (1996). Continental drift: European integration and the location of UK foreign direct investment (No. 107). National Institute of Economic and Social Research.
31. Pain, N., & Young, G. (2004). The macroeconomic impact of UK withdrawal from the EU. Economic Modeling, 21(3), 387-408.
32. Purdue, D., & Huang, H. (2015). Brexit and its Impact on the Irish Economy. National Treasury Management Agency, Dublin. Retrieved from www.ntma.ie/download/BrexitIrish%20Economy.pdf
33. PWC. (2016). Leaving the EU: Implications for the UK Economy. Retrieved from http://www.pwc.co.uk/economic-services/assets/leaving-the-eu-implications-for-theukeconomy.pdf).
34. Ramasamy, B. & Yeung, M. (2010). The determinants of foreign direct investment in services. The World Economy, 33(4), 573-596.
35. Straathof, B., Linders, G. J., Lejour, A., & Jan, M. Ã. (2008). The Internal Market and the Dutch economy: Implications for trade and economic growth (No. 168). CPB Netherlands Bureau for Economic Policy Analysis. The Hague.