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Voting with their money: Brexit and outward investment by UK firms

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  • Holger Breinlich
  • Elsa Leromain
  • Dennis Novy
  • Thomas Sampson

Abstract

We study the impact of the 2016 Brexit referendum on UK foreign direct investment. Using the synthetic control method to construct appropriate counterfactuals, we show that by March 2019 the Leave vote had led to a 17% increase in the number of UK outward investment transactions in the remaining EU27 member states, whereas transactions in non-EU OECD countries were unaffected. These results support the hypothesis that UK companies have been setting up European subsidiaries to retain access to the EU market after Brexit. At the same time, we find that the number of EU27 investment projects in the UK has declined by around 9%, illustrating that being a smaller economy than the EU leaves the UK more exposed to the costs of economic disintegration.

Suggested Citation

  • Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2019. "Voting with their money: Brexit and outward investment by UK firms," CEP Discussion Papers dp1637, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1637
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    1. Breinlich, Holger & Leromain, Elsa & Novy, Dennis & Sampson, Thomas, 2020. "Voting with their money: Brexit and outward investment by UK firms," European Economic Review, Elsevier, vol. 124(C).
    2. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson, 2019. "Exchange rates and consumer prices: evidence from Brexit," CEP Discussion Papers dp1667, Centre for Economic Performance, LSE.
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    More about this item

    Keywords

    Brexit; foreign direct investment; synthetic control method;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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