Brexit and Foreign Investment in the UK
27 Pages Posted: 7 May 2016
Date Written: May 5, 2016
This paper explores the likely impact on inward FDI in the UK of the prospects of the UK leaving the EU. We determine that a decisive factor is the uncertainty that is created by the prospect of BrExit, and our analysis shows that indeed it amplifies the effect of any shock. We are able to determine the impacts of currency adjustments in a post Brexit world to the likely effect on inward investment flows into the UK. Amongst other things, our results suggest that in the current near-zero inflation, growth and interest rates period, the anticipated sterling depreciation of a BrExit will act to deter FDI from coming to the UK for a prolonged period of time.
Keywords: FDI, BRexit, markov switching
JEL Classification: F23, C22, F47
Suggested Citation: Suggested Citation