Brexit spillovers: how economic policy uncertainty affects foreign direct investment and international trade

Xiaoqing An, William Barnett, Xue Wang and Qingyuan Wu

The European Journal of Finance, 2023, vol. 29, issue 16, 1913-1932

Abstract: In recent years, the economic policy uncertainty in various countries has gradually increased with the increasing complexity of global economic situation, and foreign direct investment and trade have also been impacted. As a historic event, does Brexit affect the economic consequences of economic policy uncertainty? In this regard, we aim to examine the Brexit spillovers on five major EU member states and the UK through economic policy uncertainty. Cluster analysis and TVP-VAR model are used to analyze the impact of economic policy uncertainty (EPU) on foreign direct investment (FDI) and international trade (TRADE) during Brexit. The results at different time horizons show that, in addition to the Netherlands, impulse responses of foreign direct investment and international trade have the characteristics of positive and negative conversion. Despite all this, impulse responses of international trade are lower than those of foreign direct investment. Time points when foreign direct investment and international trade have the greatest impulse response vary from country to country. Overall, the impact of economic policy uncertainty on them is more reflected in the late Brexit period. Based on the above findings, we draw policy implications.

Date: 2023
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Working Paper: Brexit Spillovers: How Economic Policy Uncertainty Affects Foreign Direct Investment and International Trade (2022)
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DOI: 10.1080/1351847X.2022.2134812

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