No-Exit Brexit: Japanese Affiliate Exit and Divestment in Post-Brexit UK

Michael Ryan and Ayumu Tanaka

No yx7as, SocArXiv from Center for Open Science

Abstract: This paper examines Brexit's impact on Japanese foreign direct investment (FDI) in the UK, with a specific focus on affiliate exit and divestment. Utilizing Toyo Keizai Inc.'s Overseas Japanese Companies Data spanning 2010--2020, the study employs a difference-in-differences (DiD) estimation approach and synthetic DiD approach to compare Japanese affiliates' exit and divestment in the UK to affiliates located in other EU nations. Contrary to widespread expectations of a mass exodus of Japanese firms from the UK post-Brexit, the study reveals no statistically significant impact of Brexit on either Japanese affiliate exit or divestment. This finding challenges a prevailing narrative surrounding Brexit's detrimental effects on foreign investment in the UK. The observed resilience of Japanese affiliates is likely attributable to FDI hysteresis effects, arising from the substantial fixed and sunk costs inherent in FDI. These costs create a strong incentive for firms to maintain existing operations even in the face of political and economic uncertainty.

Date: 2024-12-11
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:yx7as

DOI: 10.31219/osf.io/yx7as

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