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The Impact of Brexit on Foreign Investment

February 7, 2017
The Impact of Brexit on Foreign
Investment and Production

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In a recent Staff Report published by the Federal Reserve Bank of Minneapolis, Ellen McGrattan and Andrea Waddle examine the effects of the United Kingdom's withdrawal from the European Union on foreign investment, production, and welfare in countries that conduct business with the EU.

McGrattan and Waddle found that Brexit is likely to lead to a decrease in foreign investment and production by UK firms, along with a fall in consumption. They also estimate a small, positive welfare gain for UK citizens. Overall welfare for EU citizens is predicted to decrease, since consumption and leisure are also expected to drop. If the UK relaxes their current restrictions on other top foreign investors, some of these effects could be moderated.

Ellen McGrattan is the director of the Heller-Hurwicz Economics Institute and professor of economics at the University of Minnesota.

 

Andrea Waddle is an assistant professor of economics at the University of Richmond and graduated from the University of Minnesota’s Ph.D. program.