Will Brexit Hurt Investments in CEE Countries?

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Introduction

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The United Kingdom (UK) itself represents one of the most important source countries for foreign direct investments (FDIs) inflows into the CEE region. Besides, Britain plays an important role of a gateway for FDIs flows between continental Europe and third countries, Anglophone countries in particular. The UK shares with the English speaking (Anglophone) countries strong cultural and economic linkages through the common law legal system, common managerial practices and corporate governance system, similar role of civil society in the economy and many other features regarding organization of society. The UK is thus a natural stepping point for FDIs from these countries that are directed into the continental European Union (EU).

British companies often play the role of a safe intermediary that serves as a headquarters for further investments into the EU, offering English speakers with knowledge of the targeted markets and available related financial and consultancy services. Membership in the EU at the same time provides for an easy expansion from the UK further into the EU (free movement of capital, free movement of managers, advantageous regime of taxation of dividends etc.). In case of Brexit, this settled pattern would be threatened and dependant on the conditions of the British access to the EU internal market which would result from the negotiations with the rest of the EU under the Article 50 of the Treaty on European Union.

The analysis aims to respond to the following research questions:

  1. What is the role of the UK companies in bringing FDIs into the CEE region from the non-EU Anglophone source countries?

  2. How could British departure from the EU influence the structure of the investment chain? Would be the managerial oversight of the CEE investment moved from the UK? If yes, would it be moved back to the source country of the investment (e.g. USA, Canada) or forwarded to the CEE country or elsewhere in the EU?

This paper firstly briefly provides a political perspective on the FDIs flow within the debate in the UK and consequently discusses the difference between FDIs and trade exchange. After setting the goals and methodology, a summary of the main findings reflecting the data available in the chart attached follows. The conclusions include policy reflection on the analysis.

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