New study warns of FDI drop in UK post-Brexit
A UCL and LSE study has found that foreign direct investment (FDI) in the UK is to drop by 37% post-Brexit. This level is a 50% increase on previous estimates of the effect of Brexit on the investment levels of international companies in the UK economy. The peer-reviewed study, which is forthcoming in the Journal of Common Market Studies, highlights that the single market, since its implementation in 1992, has been the ‘cornerstone’ for additional foreign direct investment (FDI). As of 2018, the net value of FDI into the UK was worth £49.3 billion, down from £80.6 billion in 2017, with foreign investors using the UK as a platform to export to the rest of the Single Market.
The UK has profited the most out of all EU Member States from FDI over the course of the past twenty years, according to Nauro Campos, Economics Professor at UCL. The researchers highlight the significance of the single market and customs union in attracting FDI to the UK. It was found that being part of the single market and customs union led to an upswing in FDI one these policy mechanisms were introduced, EU membership alone before this time did not lead to high FDI levels. EU membership did not have a significant impact on FDI before the implementation of the single market. Instead, they show evidence that the positive significant effect takes place only after the implementation of the single market in December 1992. Despite this, one of the research findings is that the effect of EU membership on FDI is significantly larger than membership of Free Trade Area agreements, such as NAFTA, EFTA and Mercosur (and much larger than an “exit on WTO terms”.)
The impact of Brexit on future FDI was researched through a structural gravity framework on annual bilateral FDI data for almost every country in the world, over the period 1985-2018.