Reports
Discussion Papers
No.690 How Does BREXIT Affect Production Patterns of Multinational Enterprises?
February 2018
ABSTRACT
This paper explores how the British exit (Brexit) from the European Union (EU) potentially affects the United Kingdom (UK) economy and the production patterns of multinational enterprises that choose the UK as either a destination market or a gateway to the EU market. Utilizing an extended version of the knowledge-capital model, simulation analysis reveals the following points: (1) Brexit will encourage firms in both the EU and the UK to change strategies to incorporate more horizontal-type affiliates so that Brexit will not reduce inward foreign direct investment (FDI) to the UK as long as the UK is attractive as a final market; and (2) In contrast, export-platforms serving the EU market owned by firms in non-EU countries will completely withdraw by the time Brexit is completed. To cover losses from the reduction in the number of export-platforms, efforts to enhance the attractiveness of the UK as a destination market would be a solution in the short-run, while seeking new economic partnership programs with both EU and non-EU countries will work in the long-run.
Keywords: Brexit; foreign direct investment; multinational enterprise; export-platform; knowledge-capital model
JEL classification: F11; F12; F15; F23
PDF available at http://hdl.handle.net/2344/00050162
Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.