IDEAS home Printed from https://ideas.repec.org/a/aea/aejmac/v12y2020i1p76-103.html
   My bibliography  Save this article

The Impact of Brexit on Foreign Investment and Production

Author

Listed:
  • Ellen R. McGrattan
  • Andrea Waddle

Abstract

Using simulations from a multicountry neoclassical growth model, we analyze several post-Brexit scenarios. First, the United Kingdom unilaterally imposes tighter restrictions on FDI and trade from other EU nations. Second, the European Union retaliates and imposes the same restrictions on the United Kingdom. Finally, the United Kingdom reduces restrictions on other nations during the post-Brexit transition. Model predictions depend crucially on the policy response of multinationals' investment in technology capital, accumulated know-how from investments in R&D, brands, and organizations used simultaneously in their domestic and foreign operations.

Suggested Citation

  • Ellen R. McGrattan & Andrea Waddle, 2020. "The Impact of Brexit on Foreign Investment and Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 76-103, January.
    • Handle: RePEc:aea:aejmac:v:12:y:2020:i:1:p:76-103
    DOI: 10.1257/mac.20170399
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/mac.20170399
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20170399.data
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/mac.20170399.ds
    Download Restriction: no
    File URL: https://libkey.io/10.1257/mac.20170399?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    2. Campos, Nauro F & Coricelli, Fabrizio & Moretti, Luigi, 2014. "Economic Growth and Political Integration: Estimating the Benefits from Membership in the European Union Using the Synthetic Counterfactuals Method," CEPR Discussion Papers 9968, C.E.P.R. Discussion Papers.
    3. Thomas J. Holmes & Ellen R. McGrattan & Edward C. Prescott, 2015. "Quid Pro Quo: Technology Capital Transfers for Market Access in China," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 1154-1193.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Fetzer, Thiemo & Wang, Shizhuo, 2020. "Measuring the Regional Economic Cost of Brexit: Evidence up to 2019," CEPR Discussion Papers 15051, C.E.P.R. Discussion Papers.
    2. Richard Harris & John Moffat, 2020. "The impact of product subsidies on plant‐level total factor productivity in Britain, 1997–2014," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 387-403, September.
    3. Joseph B. Steinberg, 2020. "The macroeconomic impact of NAFTA termination," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 821-865, May.
    4. Anderson, James E. & Larch, Mario & Yotov, Yoto, 2017. "Trade and Investment in the Global Economy," School of Economics Working Paper Series 2017-9, LeBow College of Business, Drexel University.
    5. Anderson, James E. & Larch, Mario & Yotov, Yoto V., 2019. "Trade and investment in the global economy: A multi-country dynamic analysis," European Economic Review, Elsevier, vol. 120(C).
    6. Paul J. J. Welfens & Fabian J. Baier, 2018. "BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings," IJFS, MDPI, vol. 6(2), pages 1-21, April.
    7. Renato Faccini & Edoardo Palombo, 2019. "News Uncertainty in Brexit U.K," Discussion Papers 1921, Centre for Macroeconomics (CFM).
    8. Campos, Nauro F., 2019. "B for Brexit: A Survey of the Economics Academic Literature," IZA Discussion Papers 12134, Institute of Labor Economics (IZA).
    9. Juan Carlos Conesa & Matthew J. Delventhal & Pau S. Pujolas & Gajendran Raveendranathan, 2019. "Trade and Catching Up to the Industrial Leader," Department of Economics Working Papers 2019-12, McMaster University.
    10. Carrère, Céline & Mrázová, Monika & Neary, J Peter, 2020. "Gravity without Apologies: The Science of Elasticities, Distance, and Trade," CEPR Discussion Papers 14473, C.E.P.R. Discussion Papers.
    11. Céline Carrère & Monika Mrázová & J Peter Neary, 2020. "Gravity Without Apology: the Science of Elasticities, Distance and Trade," Economic Journal, Royal Economic Society, vol. 130(628), pages 880-910.
    12. Benjamin Born & Gernot J. Müller & Moritz Schularick & Petr Sedlacek, 2017. "The Economic Consequences of the Brexit Vote," Discussion Papers 1738, Centre for Macroeconomics (CFM).
    13. Hassan, Tarek Alexander & Hollander, Stephan & Tahoun, Ahmed & van Lent, Laurence, 2019. "The Global Impact of Brexit Uncertainty," CEPR Discussion Papers 14253, C.E.P.R. Discussion Papers.
    14. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    15. Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Mizen, Paul & Smietanka, Pawel & Thwaites, Gregory, 2019. "The impact of Brexit on UK firms," Bank of England working papers 818, Bank of England.
    16. Tarek Alexander Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2020. "The Global Impact of Brexit Uncertainty," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-332, Boston University - Department of Economics.
    17. Benjamin Born & Gernot J Müller & Moritz Schularick & Petr Sedláček, 2019. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," Economic Journal, Royal Economic Society, vol. 129(623), pages 2722-2744.
    18. Emily Blanchard & Amelia U. Santos-Paulino & Claudia Trentini & Emanuel Milet, . "Implications of rising trade tensions for FDI projects," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    19. Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2019. "The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom," Discussion Papers 51, Monetary Policy Committee Unit, Bank of England.
    20. Adolfo Maza & Paula Gutiérrez‐Portilla & José Villaverde, 2020. "On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach," Growth and Change, Wiley Blackwell, vol. 51(2), pages 646-675, June.
    21. Garcia-Lazaro, Aida & Mistak, Jakub & Gulcin Ozkan, F., 2021. "Supply chain networks, trade and the Brexit deal: a general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    22. Pitsoulis, Athanassios & Schwuchow, Soeren, 2018. "Though this be madness: A game-theoretic perspective on the Brexit negotiations," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181635, Verein für Socialpolitik / German Economic Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Franklin N. Ngwu & Chris Ogbechie & Kalu Ojah, 2019. "Growing cross-border banking in Sub-Saharan Africa and the need for a regional centralized regulatory authority," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(3), pages 274-285, September.
    2. Mustapha Douch & Terence Huw Edwards, 2022. "The bilateral trade effects of announcement shocks: Brexit as a natural field experiment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 305-329, March.
    3. Benjamin Born & Gernot J. Müller & Moritz Schularick & Petr Sedlacek, 2017. "The Economic Consequences of the Brexit Vote," Discussion Papers 1738, Centre for Macroeconomics (CFM).
    4. Kevin H. O'Rourke, 2016. "Independent Ireland In Comparative Perspective," Working Papers 201620, School of Economics, University College Dublin.
    5. Klaus Jaffe, 2015. "Agent based simulations visualize Adam Smith's invisible hand by solving Friedrich Hayek's Economic Calculus," Papers 1509.04264, arXiv.org, revised Nov 2015.
    6. Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Mizen, Paul & Smietanka, Pawel & Thwaites, Gregory, 2019. "The impact of Brexit on UK firms," Bank of England working papers 818, Bank of England.
    7. Liu, Qing & Qiu, Larry D., 2016. "Intermediate input imports and innovations: Evidence from Chinese firms' patent filings," Journal of International Economics, Elsevier, vol. 103(C), pages 166-183.
    8. Kevin Hjortshøj O'Rourke, 2017. "Independent Ireland in Comparative Perspective," Oxford Economic and Social History Working Papers _150, University of Oxford, Department of Economics.
    9. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 163-184, Fall.
    10. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
    11. Arigoni, Filippo & Lenarčič, Črt, 2020. "The impact of trade policy uncertainty shocks on the Euro Area," MPRA Paper 100832, University Library of Munich, Germany.
    12. Bergin, Paul R & Corsetti, Giancarlo, 2020. "The Macroeconomic Stabilization of Tariff Shocks: What is the Optimal Monetary Response?," CEPR Discussion Papers 14556, C.E.P.R. Discussion Papers.
    13. Wassmann, Pia, 2016. "The Economic Effects of the EU Eastern Enlargement on Border Regions in the Old Member States," Hannover Economic Papers (HEP) dp-582, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    14. Joshua Aizenman, 2015. "Internationalization of the RMB, Capital Market Openness and Financial Reforms in China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 444-460, August.
    15. Carter Mix, 2020. "Technology, Geography, and Trade over Time: The Dynamic Effects of Changing Trade Policy," International Finance Discussion Papers 1304, Board of Governors of the Federal Reserve System (U.S.).
    16. Hong, T., 2021. "Revisiting the Trade Policy Uncertainty Index," Cambridge Working Papers in Economics 2174, Faculty of Economics, University of Cambridge.
    17. Keller, Wolfgang, 2020. "Comments on Mandelman and Waddle's “Intellectual property, tariffs, and international trade dynamics”," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 104-106.
    18. Pierluigi, Beatrice & Sondermann, David, 2018. "Macroeconomic imbalances in the euro area: where do we stand?," Occasional Paper Series 211, European Central Bank.
    19. Dennis Essers & Stefaan Ide, 2017. "The IMF and precautionary lending : An empirical evaluation of the selectivity and effectiveness of the flexible credit line," Working Paper Research 323, National Bank of Belgium.
    20. Mary Amiti & Sang Hoon Kong & David Weinstein, 2020. "The Effect of the U.S.-China Trade War on U.S. Investment," NBER Working Papers 27114, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmac:v:12:y:2020:i:1:p:76-103. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.