The Impact of Brexit on FDI Flows to the UK

Ever since the Brits voted to leave the European Union (EU), many wonder what the consequences are going to be. The purpose of this paper is to quantify the impact of Brexit on the foreign direct investment (FDI) flows to the UK, using longitudinal data covering 13 years and 34 partner countries. It does so by using the gravity equation developed by Tinbergen (1962). We create a dummy variable representing EU membership which equals 1 if both host and partner country are a member of the EU and vice versa. We find that EU membership significantly increases inward FDI flows with 86.5%. Therefore, we project this to be the loss to the UK when Brexit happens.