Brexit's Impact on UK FDI

Foreign direct investment is the cross-border investment in which the investors from one country invest in the foreign countries. FDI supports enhancing the productivity of the organisations and promotes growth and development of the businesses. UK receives the highest FDI after the United States and China and the flexible labour markets, technological development; highly educated and skilled workforce helps in attracting FDI in the UK (Othman et al., 2019). The UK is amongst the major attraction of FDI in Europe and there are various determinants that attract investment in the country. The availability of a skilled and highly educated workforce helps in attracting the companies to invest in the UK and the infrastructure and innovation and technological development in the country are also among the major attraction for foreign direct investment in the UK. Brexit in the UK has created uncertainties in the market and it is likely to have an impact on the FDI in the country (Othman et al., 2019).

FDI majorly contributes to the overall economic growth of the country, it increases jobs opportunities for the people in the country and reduces the unemployment rate in the country. Increased employment opportunities help in enhancing the income level of the people and it also increases the purchasing power of the customers (Islam et al., 2020). The FDI promotes technological development in the companies and also leads to human resource development. FDI increases exports, improves capital growth, and contributes to the overall development of the economy. FDI is important for economic growth and maintaining stability in the country. The government of the different countries also provides incentives and uses different strategies for attracting FDI in the country for promoting economic growth and providing better employment opportunities to the people in the country (Islam et al., 2020).

Brexit in the UK is the departure of the UK from the European Union. Due to Brexit, various businesses have moved their headquarters to the European Union. It has created uncertainties in the market for the outcomes and it has slowed the economic growth of the country. Due to Brexit, the price of the pound fell that increasing the prices of exports. Brexit has created labour shortages in the country and it is creating challenges for the companies in the country. The UK has to develop new trade agreements with the other countries and there are various changes in the country due to Brexit (Tetlow and Stojanovic, 2018).

With the other changes in the country, Brexit will also have a significant impact on Foreign Direct Investment. The research aims to analyse the impact of Brexit on Foreign Direct Investment in the UK. It will help in identifying the future implication of Brexit on the FDI in the UK. The report will focus on identifying the relationship between Brexit and Foreign Direct Investment and will help in identifying its impact on the businesses in the UK (Dhingra et al., 2016).

1.2 Research rationale

The United Kingdom is the major attracting for foreign investment in the entire report and according to a report of the UK the FDI stock is valued at an estimated £1Trillion. FDI is promoting consistent economic growth in the country and it is important to identify how Brexit in the UK will impact FDI in the country. The report will focus on identifying the current and future impact of Brexit on FDI in the country and it help in identifying the future outcomes. The research will focus on identifying the determinants that attract investment in the country. The negative impact of Brexit on FDI will impact the economic growth in the country (Kristjánsdóttir and Karlsdóttir 2020).

Brexit in the UK has impacted the economic conditions in the country and has created various challenges for businesses. Brexit in the UK has created uncertainties in the market and there are different perceptions of the people related to its outcomes. The report focuses on identifying the positive and negative impact of Brexit on the UK (Welfens and Baier, 2018). Through the research, the relation between Brexit and FDI will also be identified and it will help in identifying the impact of Brexit on FDI in the UK. There is no prior research conducted on identifying the impact of Brexit on Foreign Direct Investment in the UK and identifying its future implications on the country and the current report will focus on fulfilling the research gap.

It is important to identify how Brexit in the UK will impact FDI and the economic growth of the country. The report focuses on identifying the future implications of Brexit on Foreign Direct Investment. It will help in identifying the long-term implications of Brexit on the country and will help in determining its impact on the businesses of the UK.

1.3 Research questions

How does Brexit impact the different businesses in the UK?
What are the future implications of Brexit on Foreign Direct Investment in the UK?

1.4 Research aims and objectives

Aim

The research aim to analyse the impact of Brexit on Foreign Direct Investment in the UK

Objectives

To identify the relationship between Foreign Direct Investment and Brexit
To identify the impact of Brexit on the businesses
To identify the determinants of Foreign Direct Investment within the UK
To analyse the future implications of Brexit on Foreign Direct Investment

Through the analysis, it has been identified that Foreign Direct Investment is essential for the economic growth of the country and there are various determinants that attract investment in the country. The Brexit in the UK has created various uncertainties for businesses and investors and it has impacted FDI in the country. Through further analysis and research, the impact of Brexit on FDI and the businesses of the UK will be identified. The research will focus on identifying the future implications of Brexit on FDI in the country. Further research will be conducted by collecting data from primary and secondary sources. The primary and secondary sources will help in collecting relevant information for the research and will help in achieving the research objectives.

Literature review-

2.1 Introduction-

The literature review includes the information collected from different sources for the research topic. It helps in understanding the different concepts related to the research effectively and promotes better understanding. The literature review helped in collecting information for the impact of Brexit on Foreign Direct Investment in the UK. The chapter will focus on identifying the future implications of Brexit on Foreign Direct Investment in the UK. It will help in collecting theoretical information for the research and the data collected through literature review will be tested through primary research.

2.2 Foreign direct investment

According to Hlavacek and Bal-Domanska 2016, Foreign Direct Investment is a cross border investment in which an investor or company of one country make the investment in the company of another country. FDI promotes the economic growth of the country and promotes the creation of new employment opportunities for the people. FDI provides business growth opportunities to the companies and helps them in expanding the business in the international market. According to Corcoran and Gillanders 2015, foreign direct investment promotes the development of technology and human capital in the country. It helps in developing a competitive market and helps in increasing exports from the country. It boosts the growth of different sectors in the country and promotes overall growth in the country. Different countries welcome FDI for promoting economic growth in the country. The foreign companies promote technological development in the country and provide high salaries to the employees that improve their income level.

According to the information provided by CEP 2020, the UK ranks first in Europe and sixth in the world for foreign direct investment in the country. The UK is amongst the major recipient of foreign direct investment in the world and the estimated stock value is more than £1 trillion. According to the reports around half of the FDI in the country is from the members of the European Union. FDI promotes economic growth in the UK and helps in providing better employment opportunities to the people in the country.

Brexit

According to Sampson et al 2016, Brexit is the exit of the UK from the European Union. Brexit was implemented on 31^st January 2020 and it took four years to complete the implementation of Brexit in the country. The UK will develop new trade agreements after the implementation of Brexit with other countries. The Brexit was implemented because the people of the country were afraid of the immigrants and refugees that moved to the UK because of the free movement of people in the country. Lea et al 2018, identified that the immigrants from other countries were taking other benefits and jobs in the UK that were reducing the opportunities for the local people of the country. Another reason for implementing Brexit in the country was the small businesses in the country were frustrated with the EU fees, some believed that leaving the UK will create more job opportunities in the country and many in the UK thought that the UK paid more in the EU than it received. Due to different reasons, the majority of members of the UK voted for leaving the EU and implementing Brexit in the country.

2.4 Relationship between foreign direct investment and Brexit-

According to Sampson 2017, Brexit has a direct impact on foreign direct investment. The Brexit will impact the different businesses of the country and it will impact the economic growth of the country. The foreign investors get attracted to invest in the UK because it provides a direct way to enter the EU market and after Brexit, the trade costs with the EU will be high and it will impact FDI in the country. Based on the research of Simionescu 2017, foreign companies will be less likely to invest in the UK and it will impact the growth of the country. Brexit will directly impact the foreign direct investment and growth of the country. Economic growth provides high-profit opportunities and increases FDI in the country. The Brexit will have a direct impact on the economic growth of the UK. The impact on the economic growth of the country will directly impact domestic and foreign investments in the country.

Brexit will have a direct impact on the FDI and it will have a long term impact on the country. It will increases challenges for the businesses and the uncertainties caused due to Brexit will directly impact the FDI in the country.

2.5 Impact of Brexit on the Foreign Direct Investment in the UK-

Figure: Consequences of Brexit on Foreign Direct Investment

Source: (Investment monster, 2021).

Through the above statistics provided by Investment monster 2021, it can be identified that since the announcement of Brexit in the UK foreign direct investment in the country is affected. Brexit has reduced FDI in the country and after the annulment of Brexit since 2016 the FDI in the country is reduced. There is a rapid decrease in the FDI in the country and the new investments in the country have also been reduced. The Brexit has impacted mergers and acquisitions in the country and the business expansions in the country are also reduced. The investment in the FDI project is highly impacted due to Brexit and the new investments in the business are also reduced. The reduction in foreign direct investment will impact the economic growth of the country and it may slow down the growth of the country.

Figure: Consequences of Brexit on Foreign Direct Investment

Source: (Investment monster, 2021)

According to the statistics of Investment monster 2021, it can be analysed that Brexit has created a reduction in the foreign direct investment in the country and it has also reduced the jobs created through FDI in the UK. After the announcement of Brexit in the year 2016, the jobs created through FDI is reduced. Due to a reduction in foreign direct investment in the country the employment generation in the country will be reduced and it will impact the economic growth of the country.

According to the analysis of The balance 2020, due to Brexit, the economy of the UK is suffering and the economic growth of the country has been slowed. Various businesses have shifted the headquarter of their business to the European Union countries. The uncertainty caused due to Brexit has created challenges for the businesses and it has impacted the profitability of the business. The British pound fell from $1.48 to $1.36 next data of the referendum. Welfens and Baier 2018, identified that the decrease in the value of the pound helped in increasing the exports but it increases the cost of importing the goods in the country. The impact on the businesses and the uncertainty caused due to Brexit is impacting the Foreign Direct Investment in the country. The Brexit impacted jobs in the country. According to Driffield and Karoglou 2019, Brexit has impacted the young employees of the country. In Germany, it is estimated that the country will face labour shortage but due to restrictions on the free movement of people the jobs will not be available for the young employees of the UK. In the UK the availability of low skilled employees will be less and the expenses of recruiting the new employees will be increased for the business. The country is developing new trade agreements with other countries and it will also increase uncertainty in the market.

According to Arshad et al 2020, London is the leader in the financial service sector and the Brexit has impacted the financial sector of London. The growth of the financial sector has been depressed due to Brexit and it is impacting the investment in the country. Due to Brexit, the investment in businesses was reduced by 11% between the years 2016 and 2019. International companies are less interested to enter the European market through the UK. It will highly impact the foreign direct investment in the country. Various large financial companies have switched their clients from the UK to other countries.

Through the analysis, it is identified that Brexit has impacted the economic growth of the country and has impacted various businesses and financial sectors of the country that will impact the foreign direct investment in the country. The uncertainties caused due to Brexit have impacted the FDI in the country.

2.6 Impact of Brexit on different businesses in the UK-

Hohlmeier and Fahrholz 2018, mentioned in their study that due to Brexit the businesses in the UK are facing various challenges like disruption in the supply chain. The tariff for importing the EU goods have increased and importing the goods is also causing delay because of various legal procedures. According to Malik et al 2020, the UK has developed new trade deals with the European Union according to that the goods need to meet some specific terms, like the businesses needs demonstrate that the goods are originated from the UK or EU etc. if the goods do not fulfil the terms it will be subject to common custom tariff or UK global tariff. The increasing tariff and regulations for trade are increasing the expenses and challenges for the businesses. The Brexit was tough on the workforce and due to the restriction on the movement of people between the EU and the UK the availability of cheap labour has been reduced. The businesses have to invest more in the recruitment of employees and retaining the existing ones.

Farnsworth 2017, identified that Brexit will allow businesses to trade more freely in other countries. The UK is currently working on developing new trade agreements with the non-EU countries that will help the businesses of the UK to trade freely with the other countries like Australia, America etc. It will provide the opportunity to the businesses to expand their business in foreign markets and will promote business growth. According to Gasiorek et al 2018, the restrictions of the EU will be reduced on the businesses and will provide opportunities to the businesses to trade more freely. In developing countries like China, India, Brazil, etc. the purchasing power of the customers is increasing and it provides an opportunity to the businesses of the UK to expand the business in the developing countries. Due to Brexit, the value of the pound is decreased making British products cheaper and more appealing for the customers. The Brexit has impacted different businesses in the UK.

Initially, the businesses in the UK will need to face some challenges that may impact the performance and profitability of the businesses. The government of the UK is consistently working for reducing the negative impact of Brexit on businesses. It is expected that in future Brexit will provide various advantages to the businesses and it will reduce the challenges faced by the businesses currently.

2.7 Determinants of foreign direct investment within the UK

Based on the analysis of Othman et al 2019, there are various factors that attract Foreign Direct Investment in the UK. The economic growth in the country attracts investment in the country. The economic growth of the UK is high and it helps in attracting investors to invest in the businesses of the country. The high performing sectors and innovation in the businesses attract investors. There are different high performing sectors in the UK like retail, manufacturing etc. that helps in attracting FDI in the country. According to Cole et al 2017, there are various multinational companies operating in the UK that is performing effectively in the international market and help in increasing FDI in the country. London is the leader in the financial service sector. The unemployment rate in the country is low and it also attracts FDI to the country. The UK is ranked first in Europe and sixth in the world for FDI. The legal framework of the country is among the most flexible establishing a business in the UK requires less time. According to a report of Santander 2022, establishing a business in the UK requires only 13 days where as in other European countries it required around 32 days on average. There are various determinants that attract FDI in the country. It promotes the economic growth of the country and provides employment opportunities to the people in the country. The FDI promotes sustainable growth in the country. The government of the UK is facilitating investment by providing access to the large integrated market to foreign companies.

Pandya 2016, mentioned in their report that the strong digital and physical infrastructure in the country attracts foreign companies to establish the business in the country. The workforce of the country is highly educated and skilled and it helps the foreign businesses in getting highly talented employees for managing the business activities. The political environment of the country is stable and it is an advantage for foreign companies to establish business in the UK. The UK has ease of doing business and the tax environment of the country is competitive which is a major determinant for Foreign Direct Investment in the country.

There are different determinants that help in attracting foreign direct investment in the country and promote the economic growth of the country. The determinants will help in attracting FDI in future in the country and will enhance the growth of different sectors in the country.

2.8 Future implications of Brexit on foreign direct investment-

According to Dhingra et al 2016, through the research, it has been identified that Brexit will have a long term impact on the British economy. According to the experts, Brexit will impact productivity and investments in the country. The experts observed that due to Brexit the impact on productivity and investment can already be noticed. The investment was highly contributing to the growth in the country and the impact on investment and productivity will also impact the growth of the country. As per the views of Latorre et al 2020, experts Brexit will impact the businesses in the country and will create various challenges for the businesses. Due to uncertainties in the market of the UK after Brexit, various large companies have shifted their headquarters to other countries and it will also have a long term impact on the country. The new investments in the country and mergers and acquisitions of the foreign companies with the companies have also reduced in the UK.

Through the analysis conducted by UCL News 2020, it has been identified that Brexit will create a 37% fall in the FDI in the UK over the next decade. It is expected to have a long term impact on the foreign direct investment in the country. The Brexit will reduce FDI in the country and will create a downfall in the income of about £2200 of GDP per household. The income losses will also continue long term and will impact the growth of the country.

De Almeida et al 2019, argued that according to some of the experts highlighted that Brexit will provide various opportunities to the UK. The Brexit will provide an opportunity for the country to develop different trade agreements with different countries. The physical and digital infrastructure, government support, political stability, skilled workforce, etc. will help in attracting investment in the country. The technological growth in the country and research and development will also help in increasing the investment in the country. Simionescu 2016, identified that Brexit will help the UK in strengthening their trade relationship with other countries. Improving the trade relations with different countries will help in increasing foreign direct investment in the country and it will promote economic growth in the future. It will provide greater independence to the country to trade with other countries and will help in reducing the regulations of the EU for trade. It will provide the opportunity to the country for promoting digital and technological development in the country and will help in providing better employment opportunities to the people in the country.

Through the analysis, it has been identified that Brexit will have various negative impacts on the Foreign Direct Investment in the country and it will have a long term impact on the investments in the country. According to the information collected from different sources, it has been identified that the foreign direct investment will be reduced with the implementation of Brexit in the country and it will impact the economic growth of the country. Through the other analysis, it is identified that it will provide various advantages to the business. The Brexit will provide the opportunity to the UK to develop new trade agreements with the other countries and will provide better trade opportunities and will help in increasing foreign direct investment in the country.

2.9 Conclusion-

Through the analysis, it is identified that Brexit in the UK has created various challenges for the businesses and it is influencing the profitability of the businesses. It has created supply chain disruption, increased the tariffs for imports and impacted the investment. It is also providing some benefits to the businesses like they can expand their business in other foreign countries etc. Brexit is impacting the economic growth of the country and it is impacting foreign direct investment in the country. The Brexit has created uncertainty in the market and it is expected to have a long term impact on the country.

The literature review helped in collecting data from different sources related to the research topic and it helped in collecting theoretical information related to the different concepts of the research topic. The information available on the secondary sources was not sufficient and for collecting specific information the researcher will collect data through the primary research method. The primary research will help in collecting specific information for the research topic and will help in getting relevant research results. The data collected through literature review will be tested through primary research.

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The Impact of Brexit on FDI in the UK

Table of Contents

Chapter 1: Introduction

1.1 Background of research topic