Brexit and the location of Japanese direct investment in European regions

Abstract

This paper investigates how the Brexit announcement affects Japanese direct investment into Europe at the regional NUTS-2 level. Political and economic uncertainty is an important factor affecting the economic performance of a country and its regions. In this study, Japanese annual firm-level data between the years 2000 and 2018 for 31 European countries is used. Negative binomial estimations indicate a significant negative relationship between uncertainty associated with the Brexit announcement and Japanese foreign direct investment (FDI) in the UK regions. Strong FDI path dependence currently acts to dampen this effect. However, depending upon future European Union Single Market access rules, such path dependence could act to magnify Brexit’s effect on inward-UK FDI. JEL Classification Codes: F23, R12.