The Brexit Impact on Inward FDI in the UK

Walid Y. Alali and Haider Ellalee

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

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 findings 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.

Keywords: Brexit; Currency volatility; Economic growth; Inward investment; Markov switching; Structural vector auto-regression (search for similar items in EconPapers)
JEL-codes: C32 E65 F21 O52 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:274655

DOI: 10.2139/ssrn.4482585

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