Based on a novel approach that addresses the problem of the existing research (according to which the effect leaving a free-trade or customs union will at most annul the benefits from joining it) we find that, if Brexit triggers a sterling depreciation in the current economic climate, this will fuel a prolonged negative effect on FDI. FDI flows may be positively affected (at most) by a sterling depreciation after Brexit only if this event drives the UK economy to a period of highly volatile growth, inflation, interest and exchange rates: a scenario that is rather unlikely. And, even then, the sterling depreciation benefits would last for only a short period of time.

To read Nigel Driffiel and Michail Karoglou‘s full publication on the likely impact of Brexit on inward foreign direct investment, click here.