The Brexit Impact on Inward FDI in the UK

Ellalee, Haider and Alali, Walid Y. (2018): The Brexit Impact on Inward FDI in the UK. Forthcoming in: (20 May 2018)

Abstract

This paper examines the potential Brexit impact on inward FDI (foreign direct investment) through its potential impact on the variables of the benchmark characterising the macroeconomy. Therefore, we propose to use automatic structural vector regression of Markov system change to distinguish between fluctuating and steady-state states of economics and compute, among others, the contemporary effects that FDI frequency innately generates. Our finds propose that Brexit leads to a depreciation of the pound sterling in the present economic ambience, which will lead to a long-term negative impact on foreign direct investment. The FDI inflows might be affected positively (at most) by the post-Brexit depreciation of the pound sterling only if this circumstance drove the UK economy into a period of inflation, highly volatile growth, interest rates and exchange rates: a rather unlikely scenario. Until then, the benefits of a lower pound sterling will only last for a short time.

• Item Type: MPRA Paper
• Language: English
• Keywords: Brexit; Currency volatility; Economic growth; Inward investment; Markov switching; Structural vector auto-regression
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E65 - Studies of Particular Policy Episodes; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe

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