Certainty without conviction: why the Trade and Cooperation Agreement failed to reverse Brexit relocations?
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Using data on UK outward greenfield foreign direct investment from 2013 to 2023, synthetic difference-in-differences and Poisson-based models, we show that Brexit redirected significant investment into the EU — mostly in projects that do not fit the standard market- or efficiency-seeking FDI motives, pointing to institutional adaptation by firms. The EU–UK Trade and Cooperation Agreement stabilised outward flows but did not reverse them: trade agreements alone cannot restore business certainty without regulatory alignment and institutional credibility.
Did the Trade and Cooperation Agreement bring back the investment that UK firms moved to the EU after the referendum? Using project-level data on UK outward greenfield FDI from 2013 to 2023, together with synthetic difference-in-differences and Poisson-based estimators, we find that Brexit redirected a significant volume of investment into the EU.
Most of the relocated projects do not fit the textbook motives for FDI — seeking new markets or lower costs. Instead, they look like institutional adaptation: firms putting operations inside the EU’s regulatory perimeter to keep serving customers there. The TCA removed the worst-case uncertainty and stabilised outward flows, but it did not reverse them.
The policy lesson is that a trade agreement can deliver certainty without conviction. Restoring firms’ confidence in operating from the UK requires regulatory alignment and institutional credibility, not just tariff-free market access.
Published in: Contemporary Social Science, 21(1), 2734513. Open access.