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Brexit Spillovers: How Economic Policy Uncertainty Affects Foreign Direct Investment and International Trade

Xiaoqing An, William Barnett (), Xue Wang and Qingyuan Wu
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Xiaoqing An: School of Economics, Jinan University, Guangzhou city, Guangdong Province, China
Xue Wang: dInstitute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, China and Department of Economics, Emory University, Atlanta, GA, U.S.
Qingyuan Wu: School of Economics and Management, Hanshan Normal University, Chaozhou, China

No 202208, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: We examine the Brexit spillovers on five major EU member states and the UK through economic policy uncertainty. Cluster analysis and TVP VAR model are applied to data from five major EU member states and the UK to analyze the impacts of economic policy uncertainty (EPU) on foreign direct investment (FDI) and international trade (TRADE) during Brexit. The results show that the impacts of EPU in six economies are different at different stages of Brexit. The impulse responses of FDI are relatively large in the Netherlands and the UK, especially in the short term. Moreover, in terms of strengths, the impulse responses of FDI are generally greater than those of TRADE. At the time points related to Brexit, the EPU of the Netherlands has the greatest impacts on its FDI and TRADE, followed by the UK. Furthermore, the duration of the impact of EPU on FDI is generally greater than that of EPU on TRADE. Overall, the Brexit spillovers induced by economic policy uncertainty can be grouped into three categories considering intensity: high impact for two economies (the Netherlands and the UK); medium impact for two economies (France and Spain); and low impact for two economies (Germany and Italy).

Keywords: Brexit; Economic Policy Uncertainty; Foreign Direct Investment; International Trade. (search for similar items in EconPapers)
JEL-codes: E0 F1 H0 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-cwa, nep-eec, nep-int and nep-mac
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