Press Release - Friday 15th April 2016
The Impact of Brexit on Foreign Investment in the UK
Third in the new series of #CEPbrexit policy briefings from the Centre for Economic Performance
Leaving the European Union (EU) would reduce flows of foreign direct investment (FDI) into the UK by more than a fifth, damaging productivity and lowering people's incomes. Cars and financial services - two important UK industries - would receive less investment from foreign firms that use the UK as a base to access EU markets. And the UK's ability to negotiate concessions from regulations on EU-related transactions would be seriously eroded. Overall, incomes could fall by about 3.4% just from lower foreign investment.
These are among the findings of new research by the Centre for Economic Performance (CEP) at the London School of Economics. The third in a series of #CEPBrexit reports examines how leaving the EU would affect UK incomes through changes in foreign investment in the UK.
The report begins by noting that FDI raises national productivity and therefore output and wages. Multinational firms bring in better technological and managerial know-how, which directly raises output in their operations. FDI also stimulates domestic firms to improve - for example, through stronger supply chains and tougher competition.
So why might FDI fall if the UK left the EU?
Thomas Sampson remarked: "It's pie in the sky to think that a free trade deal with the EU, like the Swiss or Canadian arrangements, would solve the FDI problem. One reason that foreign banks, including the Swiss, flock to the City of London is that they have free access to the European Single Market. We put this in jeopardy by jumping ship."
Swati Dhingra noted: "We estimate that British people could be 3.4% worse off due to lower FDI, which is about £2,200 per household. The car industry has been a British success story, but it will suffer a big blow if we leave."
Gianmarco Ottaviano added: "The heavy economic cost of Brexit might be a price that many people are willing to pay. But as we go down the list of items involved, the bill for British households keeps on mounting."
For further information, contact:Swati Dhingra on +44 (0)20 7955 7804, Email: email@example.com
Gianmarco Ottaviano, Email: firstname.lastname@example.org
Thomas Sampson on +44 (0)20 7955 7408, Email: email@example.com
John Van Reenen on +44(0)7803 614137 / +44 (0)20 7955 7049, Email: firstname.lastname@example.org
Helen Durrant on +44 (0)20 7955 7395; Email: email@example.com
Romesh Vaitilingam on +44(0)7768 661095, Email: firstname.lastname@example.org
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