Using simulations from a multicountry neoclassical growth model, we analyze several post-Brexit scenarios. First, the United Kingdom unilaterally imposes tighter restrictions on FDI and trade from other EU nations. Second, the European Union retaliates and imposes the same restrictions on the United Kingdom. Finally, the United Kingdom reduces restrictions on other nations during the post-Brexit transition. Model predictions depend crucially on the policy response of multinationals' investment in technology capital, accumulated know-how from investments in R&D, brands, and organizations used simultaneously in their domestic and foreign operations.
McGrattan, Ellen R., and Andrea Waddle.
"The Impact of Brexit on Foreign Investment and Production."
American Economic Journal: Macroeconomics,
Intertemporal Firm Choice: Investment, Capacity, and Financing
Trade Policy; International Trade Organizations
Multinational Firms; International Business
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Management of Technological Innovation and R&D