Working Paper: CEPR ID: DP13850
Authors: Holger Breinlich; Elsa Leromain; Dennis Novy; Thomas Sampson
Abstract: We study the impact of the 2016 Brexit referendum on UK foreign direct investment. Using the synthetic control method to construct appropriate counterfactuals, we show that by March 2019 the Leave vote had led to a 17% increase in the number of UK outward investment transactions in the remaining EU27 member states, whereas transactions in non-EU OECD countries were unaffected. These results support the hypothesis that UK companies have been setting up European subsidiaries to retain access to the EU market after Brexit. At the same time, we find that the number of EU27 investment projects in the UK has declined by around 9%, illustrating that being a smaller economy than the EU leaves the UK more exposed to the costs of economic disintegration.
Keywords: Brexit; Foreign Direct Investment; Synthetic Control Method
JEL Codes: F15; F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Brexit referendum (D79) | UK outward investment transactions in EU27 (F21) |
| Brexit referendum (D79) | UK outward investment transactions in non-EU OECD countries (F29) |
| Increase in UK outward investment transactions in EU27 (F21) | Additional investments (G31) |
| Brexit referendum (D79) | New EU27 investment projects in the UK (O52) |