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The Impact of Brexit on Foreign Investment and Production

Author

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  • 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
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    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

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