Brexit and Foreign Investment in the UK

27 Pages Posted: 7 May 2016

See all articles by Nigel Driffield

Nigel Driffield

University of Warwick - Warwick Business School

Michail Karoglou

Aston University

Date Written: May 5, 2016

Abstract

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

Driffield, Nigel and Karoglou, Michail, Brexit and Foreign Investment in the UK (May 5, 2016). Available at SSRN: https://ssrn.com/abstract=2775954 or http://dx.doi.org/10.2139/ssrn.2775954

Nigel Driffield (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Michail Karoglou

Aston University ( email )

Aston Triangle
Birmingham, B4 7ET
United Kingdom

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