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Voting with their money: Brexit and outward investment by UK firms

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  • Breinlich, Holger
  • Leromain, Elsa
  • Novy, Dennis
  • Sampson, Thomas

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.

Suggested Citation

  • Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2020. "Voting with their money: Brexit and outward investment by UK firms," European Economic Review, Elsevier, vol. 124(C).
  • Handle: RePEc:eee:eecrev:v:124:y:2020:i:c:s0014292120300325
    DOI: 10.1016/j.euroecorev.2020.103400
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    Cited by:

    1. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2019. "Exchange Rates and Consumer Prices: Evidence from Brexit," CEPR Discussion Papers 14176, C.E.P.R. Discussion Papers.
    2. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2020. "Voting with their money: Brexit and outward investment by UK firms," European Economic Review, Elsevier, vol. 124(C).
    3. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2019. "Exchange Rates and Consumer Prices: Evidence from Brexit," CEPR Discussion Papers 14176, C.E.P.R. Discussion Papers.
    4. Pieter IJtsma & Bart Los, 2020. "UK Regions in Global Value Chains," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2020-08, Economic Statistics Centre of Excellence (ESCoE).
    5. Kohnert, Dirk, 2020. "L'impact du Brexit sur l'Afrique en période de crise Corona : le cas de l'Afrique du Sud, du Nigeria, du Ghana et du Kenya," AfricArxiv qtmc3, Center for Open Science.
    6. Nicolo' Tamberi, 2020. "Export-platform FDI and Brexit Uncertainty," Working Paper Series 0320, Department of Economics, University of Sussex Business School.
    7. Halmai, Péter, 2020. "A dezintegráció gazdaságtana. A brexit esete [The economics of disintegration. The case of Brexit]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 837-877.
    8. Fetzer, Thiemo & Wang, Shizhou, 2020. "Measuring the Regional Economic Cost of Brexit: Evidence up to 2019," The Warwick Economics Research Paper Series (TWERPS) 1280, University of Warwick, Department of Economics.
    9. Gabriel, Ricardo Duque & Pessoa, Ana Sofia, 2020. "Adopting the Euro: a synthetic control approach," MPRA Paper 99391, University Library of Munich, Germany.
    10. Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Truger, Achim & Wieland, Volker, 2019. "Den Strukturwandel meistern. Jahresgutachten 2019/20," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201920, July.

    More about this item

    Keywords

    Brexit; Foreign direct investment; Synthetic control method;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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