Brexit and investment

In 2016, the UK voted to leave the European Union and growth in UK manufacturing investment ground to a halt. This paper uses administrative trade data to investigate the causal relationship between these events. We exploit firm-level customs data from 2005 on-wards to quantify firms' exposure to EU and non-EU trade in inputs and outputs. Focusing on investment as a forward-looking, dynamic outcome (since the UK did not leave the EU until 2021), we relate firms' investment to their pre-referendum EU exposure. This analysis shows firms' exposure to EU trade had a negative impact on investments post-referendum, especially in 2021. Estimated impacts are stronger for import exposure than for export exposure and there is some evidence of depressed investment from exposure to non-EU imports, likely due to the large depreciation in sterling that followed the vote. Had the UK voted to remain in the EU, these estimates imply manufacturing investment would have been over 7% higher, about £2.4 billion annually between 2016 and 2021.