To what extent has Brexit and its associated policies affected the Internationalisation on the UK, analysed through International Trade and Foreign Direct Investment?

Abstract

On 31st January 2020 United Kingdom officially left the European Union. This followed a transition period which ended on 31st December 2020, during which the UK and the EU negotiated their future relations. The Trade Cooperation and Agreement was successfully signed on 31st December 2020. The current international economic landscape gave way to a lot of uncertainty, incentivised by speculations about the impact of Brexit on international trade and FDI on both EU as well as UK. The objective of this study is to analyse to what extent has Brexit and its associated policies affected the internationalisation on the UK, measured through International Trade and Foreign Direct Investment. To study Brexit’s impact, we have used the conditional difference in difference regression model and drawn-out impacts for each of UK exports and imports along with FDI Inflows and Outflows. Overall, we can conclude that Brexit has posed a negative impact to the internationalisation of the UK. This is due to a decrease in both UK exports and imports with EU countries. Nonetheless, the DiD model shows a surprising overall effect of a trade surplus. Further, Brexit has posed a threat to the overall FDI as there has been a reduction in UK investment into EU members and, respectively, EU investment into the UK. However, this has been challenged by the qualitative data contrasting real life given examples for it. At the end of the day, only two years have passed since and we have yet to recover from the Covid-19 Pandemic and its detrimental effects. Furthermore, this dissertation also integrates qualitative data from two conducted interviews from experts in the fields, where interesting insights and results have been concluded. These interviews revealed that there is still operational difficulty and uncertainty. In conclusion, while Brexit impacts are still to be fully absorbed, evidence suggests that it has already posed a challenge to UKs’ international trade and investment landscapes. Further research is desired especially once the pandemic and Brexit effects have been fully absorbed.