Phil Discussion

Order Description Foreign Direct Investment (FDI) has been central to the UK’s economic strategy for a number of years now. Some of this has been attracted by the opportunity to exploit the UK as a tariff-free bridgehead to EU markets, and some of it has been attracted by the UK government’s in" rel="nofollow">inducements and in" rel="nofollow">investment in" rel="nofollow">in in" rel="nofollow">infrastructure - a big part of which comes from EU-based companies. Assumin" rel="nofollow">ing that: FDI accounts for 28% of the UK’s output (ONS, 2013) This becomes less attractive due to the loss of tariff-free trade with the EU (i.e. a reduction in" rel="nofollow">in “in" rel="nofollow">insiderisation”) and a decision to repatriate among EU companies - roughly a 50:50 split between EU based owners and non EU-based owners (ONS, 2013) The Government tries to stem this loss through lower corporation tax rates to encourage more FDI (which is already happenin" rel="nofollow">ing - Osborne lowered Corporation Tax just after the referendum) Then: If FDI were to be reduced (by, say, 10%), then GDP would fall (by, say, 2.8%) Accordin" rel="nofollow">ing to Okun’s law this would in" rel="nofollow">increase unemployment (by, say, 1.4%), which would then become more severe through a negative Multiplier Effect. I.e. unemployment caused by loss of FDI (approx 300,000 given that FDI accounts for 3m workers in" rel="nofollow">in the UK (Driffield et al, 2013)) and from the impact on supportin" rel="nofollow">ing in" rel="nofollow">industries (unquantifiable) would result in" rel="nofollow">in a lack of buyin" rel="nofollow">ing power of displaced workers from both of these, which would then affect others in" rel="nofollow">in the UK economy and thus multiply the impact (unquantifiable) - unless, of course, Okun’s law in" rel="nofollow">includes this The Government would then have less money (in" rel="nofollow">in the order of 2%) because of reduced in" rel="nofollow">income tax and corporation tax receipts The Government would then have to reduce its spendin" rel="nofollow">ing on social security payments and in" rel="nofollow">investin" rel="nofollow">ing in" rel="nofollow">in the country’s in" rel="nofollow">infrastructure and economic development Therefore: Unemployment would rise The unemployed would not be supported as well as previously by government hand outs as it has less tax in" rel="nofollow">income The country would stagnate through lack of in" rel="nofollow">investment and would go backwards in" rel="nofollow">in the world in" rel="nofollow">in terms of competitiveness and the prosperity of its citizens justify your answer.