Navigating uncertainty: the effects of Brexit on foreign direct investment in the United Kingdom

Considering the potential economic effects of Brexit, this paper investigates the impact of Brexit on foreign direct investment (FDI) attracted by the United Kingdom (UK) using several methodological and complementary approaches. Counterfactual analysis based on synthetic control method (SCM) and difference-in-differences (DID) methodology revealed that UK would have attracted more FDI after Brexit if it had remained in the EU, but the difference is not statistically significant. The panel data models showed that heightened economic growth in EU-27 countries enhanced the FDI made by these states in the UK before Brexit (2013–2019) and after it. On the other hand, higher economic growth and increased political stability in the non-EU countries in the sample reduced the FDI in the UK in both subperiods. The findings contribute valuable policy insights on utilizing strategic trade agreements, investment incentives, regulatory frameworks, infrastructure development, and targeted sector-specific initiatives to mitigate Brexit’s negative FDI impacts.