Brexit and Japanese foreign direct investment in the UK: a sectoral analysis[A knowledge and physical Capital model of international trade flows, foreign direct investment and multinational enterprises]

Political and economic stability significantly affect the economic performance of a country and its ability to attract inward investment. This article investigates Brexit-associated uncertainty and Japanese foreign direct investment (FDI) inflows into the UK. In contrast to most previous studies that use pre-vote behaviour to model post-vote outcomes, we include both pre- and post-announcement and post-vote data on Japanese firm-level FDI activity into Europe. In a Knowledge-Capital framework, we examine the annual count of newly established Japanese foreign affiliates into 80 countries between the years 1995 and 2019. Results from a negative binomial model reveal a statistically significant relationship between the Brexit announcement and decreased FDI in the UK. Our results identify significant sectoral heterogeneity, indicating the difficulty in making broad claims as to Brexit’s effect on the British economy’s future.