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Brexit and investment

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  • Agnes Norris Keiller

Abstract

In 2016, the UK voted to leave the European Union and growth in UK manufacturing investment ground to a halt. This paper uses administrative trade data to investigate the causal relationship between these events. We exploit firm-level customs data from 2005 on-wards to quantify firms' exposure to EU and non-EU trade in inputs and outputs. Focusing on investment as a forward-looking, dynamic outcome (since the UK did not leave the EU until 2021), we relate firms' investment to their pre-referendum EU exposure. This analysis shows firms' exposure to EU trade had a negative impact on investments post-referendum, especially in 2021. Estimated impacts are stronger for import exposure than for export exposure and there is some evidence of depressed investment from exposure to non-EU imports, likely due to the large depreciation in sterling that followed the vote. Had the UK voted to remain in the EU, these estimates imply manufacturing investment would have been over 7% higher, about £2.4 billion annually between 2016 and 2021. Data Disclaimer: this work was produced using statistical data from the UK Office for National Statistics ("ONS"). The use of ONS data does not imply the endorsement of the ONS in relation to its interpretation or analysis. Analysis using ONS research datasets may not exactly reproduce ONS aggregates and was carried out in the Secure Research Service, part of the Office for National Statistics.

Suggested Citation

  • Agnes Norris Keiller, 2024. "Brexit and investment," CEP Discussion Papers dp2025, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp2025
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    References listed on IDEAS

    as
    1. Machin, Stephen & Costa, Rui & Dhingra, Swati, 2019. "Trade and Worker Deskilling," CEPR Discussion Papers 13768, C.E.P.R. Discussion Papers.
    2. Tarek A. Hassan & Stephan Hollander & Laurence Van Lent & Ahmed Tahoun, 2024. "The Global Impact of Brexit Uncertainty," Journal of Finance, American Finance Association, vol. 79(1), pages 413-458, February.
    3. Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Mizen, Paul & Smietanka, Pawel & Thwaites, Gregory, 2019. "The impact of Brexit on UK firms," Bank of England working papers 818, Bank of England.
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    Keywords

    firm level; investment; international trade; European Union; manufacturing; Brexit;
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