Voting with Their Money: Brexit and Outward Investment by UK Firms

31 Pages Posted: 30 Jul 2019

See all articles by Holger Breinlich

Holger Breinlich

University of Surrey - School of Economics; Centre for Economic Policy Research (CEPR); London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Elsa Leromain

London School of Economics & Political Science (LSE) - London School of Economics

Dennis Novy

University of Warwick - Department of Economics; Centre for Economic Policy Research (CEPR); Centre for Economic Performance (CEP); CESifo (Center for Economic Studies and Ifo Institute)

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2019

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 Classification: F15, F21, F23

Suggested Citation

Breinlich, Holger and Leromain, Elsa and Novy, Dennis and Sampson, Thomas, Voting with Their Money: Brexit and Outward Investment by UK Firms (July 2019). CEPR Discussion Paper No. DP13850, Available at SSRN: https://ssrn.com/abstract=3428372

Holger Breinlich (Contact Author)

University of Surrey - School of Economics ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Elsa Leromain

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Dennis Novy

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
+44 (0) 2476150046 (Phone)

HOME PAGE: http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/novy/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Thomas Sampson

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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