Negative Welfare Effects from Enhanced International M&As in the Post-BREXIT-Referendum UK

Paul Welfens

No disbei232, EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library

Abstract: Summary: The disintegration of a regional integration group raises many questions, including some which relate to welfare aspects. As regards the UK's leaving of the EU (BREXIT), many studies have considered the effect on real gross domestic product (GDP), but thus far no papers have studied the effects on real gross national product and the maximum long-term per capita consumption. As regards these important questions one may consider an enhanced neoclassical growth model with foreign direct investment that allows to capture the main effect from higher post-BREXIT mergers & acquisitions; namely that an increasing number of foreign investors will take over more British banks and firms. The theoretical link picks up the basic insights of the FROOT/STEIN model (QJE, 1991) which says that a real depreciation of the currency brings about higher international mergers and acquisitions in the country with the depreciation. Thus the UK should anticipate a higher share of foreign capital ownership and effectively a worsening of the terms of capital in the future. The model presented shows that the golden age per capita consumption in the UK is reduced by BREXIT. This is an additional negative effect beyond the anticipated 10 percent GDP loss emphasized in the Treasury Study (2016) on the long-term effects of British EU membership.

Keywords: : Growth; Brexit; M&A; Mergers; Acquisitions; Foreign Direct Investment; Welfare Effects (search for similar items in EconPapers)
JEL-codes: F5 O11 O3 (search for similar items in EconPapers)
Pages: 26 Pages
Date: 2017-04
New Economics Papers: this item is included in nep-int
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