Brexit

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The United Kingdom formally left European Union on 31 Jan 2020 but this process started

decades ago. The term Brexit is used to define the withdrawal of United Kingdom from EU.

David Cameron who was the serving prime minister from conservative party announced to hold

a referendum whether UK should be a part of EU or not? Following a wide referendum, 52% of

country voted to leave and the remaining ones decided to stay which led the Prime Minister to

resign from his seat[ CITATION Men16 \l 1033 ]. As we dig deeper there are many reasons why

UK decided to split from EU. One of the major reasons were economics, sovereignty. The EU

failed to address the financial problem of UK in 2008 which caused an uproar in the society.

Secondly, EU started to threat the sovereignty of UK by imposing its rules and regulations on

various sectors such as agriculture, competition policy, copyright and patent laws. UK may have

able to split from EU through Brexit but all this have come at a great cost. Brexit has left

profound effects on the economic growth of UK which will make country unstable. The

economist suggest that growth of UK will suffer greatly for the next decade or so. The British

pound was harshly affected by the Brexit when it fell below the moderate level. Moreover,

Investors showed fear while investing in UK stock markets. As a result FTSE 100, FTSE 250,

and other markets crashed due to the Brexit deal. The agreement could not only create

tremendous problems for British citizens but it could also isolate them from the rest of European

nations[ CITATION For17 \l 1033 ].

The Brexit may have given UK a way to split themselves from EU but it will have a long lasting

effect on them and the whole world as well. According to El-Erian (2018) Brexit won’t affect

only the UK, it has lessons for the global economy. UK is going to suffer a lot in terms of

growth, trade, jobs and internal relations. The exit from EU would mean UK will stop getting

support from EU members which would further destabilize the country. This will impact the
growth of the country, increase poverty resulting in higher debts. According Evans & Menon

(2017), it stated that Brexit would raise inflation, export prices, and imports in UK which will

lower the living standards of people. Developed countries have improved standards of living

which reflects the well-being or happiness of people. Since Brexit, the average wage of an

individual had fallen tremendously. This agreement will create a massive loophole in the job

sector which can cause unemployment. Brexit not only affected UK but it also had an

international impact. According to a report of Overseas Development Institute, Brexit will leave

severe problems for developing countries as well. According to a UN report, “least developing

countries such as Tanzania, Bangladesh, Zambia, and Uganda will get affected as a result of

Brexit because UK is an export partner to them”. These countries depend greatly on EU as

majority of their goods is transported to UK and other European regions. The negative impact of

Brexit is going to affect these countries in terms of its prices and exports. The estimates revealed

that these countries could lose upto $500 million in terms of export as a result of Brexit. Not only

this, Brexit would also affect the members of European Union. Brexit may have reignited the

relation between UK and Ireland over the borders which was a major issue back in 19 th century.

UK may have been criticized for opting Brexit but on the other hand some claimed it as a

success. According to John Longworth, “stop complaining about Brexit, the economic benefit

will be huge”. Moreover, he also says, “Brexit will be a success story, but for now our leaders

have lost the plot”. The exit from EU will give UK complete authority over its borders, the

government will be able to raise the living standards by allocating resources properly.

Government would need to implement new policies to tackle with challenges that have ascended

due to Brexit.
There were discussions of DCFTA that is deep and Comprehensive Free Trade Area signed

between the countries of Morocco and EU however, as UK sidelined them from EU they have

continued their agreement with Morocco. They agreement is named as ‘Association Agreement’.

The trade agreements reach up to £2.5 billion in 2018 making Morocco 7th destination from UK

exports. This was a strategic relationship among both the counties linking them securing their

judicial, political, territorial and economic benefits which were previously mentioned in EU-

Morocco relationship. This agreement ensures free trade of British and Moroccan products in

each other’s market. This deal is effective since the time of UK leaving EU. Some of the top

exports to UK are vehicles, oils, mineral fuels, electrical machinery and so on. On the other hand

there are benefits for British consumers and businesses as well[ CITATION Dhi161 \l 1033 ].

The trade advantages such as tariff free trade of industrial products combined with liberalization

of trade in fishery products, agricultural and agri-food. On the macro level economic resources

such as labor, capital and land can be increased that also helps in obtaining natural resources for

the other country. On the micro-level for both the countries it is their citizens that are getting the

long term benefits. The citizens can get different products in less prices because of free trade

access and in return to that they can utilize this money in improving their quality of life. Similar

case can be applied by using theory of comparative advantage that explains both the countries

are having ample resource however, the country that is having more opportunity cost produces a

product and exports it. Above mentioned imports and exports are few examples of what Morocco

and UK should be focusing on in long term. The comparative advantage of UK is their oil and

gas reserves that can be exported on the other hand Morocco is having the comparative

advantage of agricultural products, they are one of the largest exporters of agriculture.
UK is considered as market oriented and highly developed economy around the world with sixth

largest national economy that is measured according to nominal GDP. Looking into the UK

Moroccan economic trade deal not only both the countries are having improved foreign

relationships and they will also have certainty in their businesses in near future. Morocco is

becoming one of the popular country which is having trade deals with many European and

Middle Eastern countries. There agriculture is supporting the world economy and similar to that

UK is exporting electrical machinery that is also beneficial for the world economy because of

having good quality products involved. The service sector of UK is also contributing to the

economy of country where they give 80% to the GDP of the country. The financial services

industry is particularly important, and London is the second-largest financial center in the world.

The country is also having strong trade relations with United States of America that contributes

towards their maximum imports as well as exports.

Before exploring UK’s foreign direct investment and its trade links with other countries it is

important to examine this on the basis of OLI framework. OLI present governor for ownership,

location and Internalization. The country like UK they are fitting on all the defined criteria of

OLI Framework. FDI increases the national productivity and output of the country. Because of

Brexit there will be significant impact on foreign direct investment. Not only the local firms but

multinational companies will also be having the influence of Brexit. UK currently has FDI stock

that is over 1 trillion, 50 percent of it is from members of European Union. The study of

Colantone & Stanig (2018) find that multinational increases their productivity in UK with the

help of management practices and Technology. On the contrary the study of Sampson (2017)

suggested that there is availability of foreign investment for UK owned firms that are belonging

to same industry. Countries like UK which are already having a developed financial sector, has
large impact of FDI on their GDP growth. Even In the case of UK not performing well after

Brexit the study of Dhingra, et al. (2016) so that they are having enough reserves to support their

real income. Earlier research of Fetzer (2019) show that during the membership of EU UK was

having 2.25% GDP through there FDI. UK has cars as their successful manufacturing option.

They have fourth largest market of car manufacturing that is available for sales in EU and other

markets. There strong reliance on cards as their top export priority in help in increasing the

country's FDI. There are many researchers predicted negative impact of Brexit on country's FDI.

Because of tariff barriers there are high chances of trade costs rising, because of the production

location did UK is having. It is costly compared to other countries which are in Europe. Financial

services have the largest stock of inward FDI in the UK (45%) and constitute 8% of GDP and

12% of tax receipts. Theory of Internalization can also be applied in this context where

multinational organizations save the expenses by manufacturing or purchasing raw materials or

import services locally[ CITATION Str19 \l 1033 ].

One of the most relevant theory in this case is Theory of Mercantilism. This theory explains that

wealth of nations depends upon having less imports and higher exports[ CITATION DeF16 \l

1033 ]. The government creates conditions such as imposing subsidies to encourage the exports

of the country, the conditions of UK are having the similar conditions where exports are

encouraged and because of which the y are having higher exports. Exports are regarded by the

country as their potential gold that is managed by the policies designed by the country. UK even

imposed higher tariffs on imported products so that locally designed products should be

encouraged and bought. Another application of theory is of Absolute Advantage. This theory

focuses that country produces the product which they think they are efficient to

produce[ CITATION Dav20 \l 1033 ]. The only factor of production in this theory is labor.
Similar to the case of UK they are having many exports however, there major export is car

manufacturing within which they are having competitive advantage compared to other countries.

Cars are the cash cows for UK as they can immediately be exported to many other nations and

can have profitable results. In the case of Morocco they have focus on agricultural products they

should be focusing on that and exporting it instead of moving towards any electronic product

because their efficiency can be compromised and the ultimate results cannot be beneficial for the

country. These economic theories will help UK in analyzing their strengths from the trade point

of view and they can excel within the product that they are having grip over.

Further discussing the above mentioned theories it is important to explore automotive industry of

UK. There are some of the premium brands such as Rolls-Royce, Jaguar, Aston Martin, Land

Rover, McLaren and so on. The industry alone had a turnover of £82 billion that has generated

higher number of value for the economy of UK. After Brexit it is expected that automotive

industry would flourish more because of having less ties with Germany that has higher number

of automotive industry sectors. Another industry is UK’s oil and gas sector that has higher results

of productivity in future times. Currently UK signing deals with Morocco and many other

countries have agreed to export oil and gas. UK produces an estimate of 1.42 million of barrel of

oil per day. Because of having good grip on financial sector UK is playing leading role in energy

trading sector and there are many businesses with which UK is in collaboration. They are

exporting their oil across Europe. The exports of oil related services and products by UK is

estimated at more than 0 billion a year in value. This shows how well managed the supply chain

of UK is on global platforms. The use of technology and competence of its people can also be

evaluated with this perspective. Another industry that is impacted by the step of Brexit is dental

industry. There are processes and recognition of qualification that has to be revised for dental
care professional which can be difficult procedure. The medicines as well as export and import

of different material and dental equipment can be difficult because most of the dental equipment

were obtained from France and Germany. Health and safety legislations should be revised with

the data protection regulations. The research and development of the business also should be

focused more in the whole process[ CITATION Wan11 \l 1033 ].

The studies of Danciu (2011) has shown a great impact of cultural factors on international trade.

For instance, the language of both the countries is different. UK has their national language as

English whereas Morocco’s national language is Arabic. However, in this case universally

accepted business language English is focused. Both the countries are having different cultures

however, it is not reflected in their trade agreement. With the practice of globalization and

improved technology countries as coming closer for the trade that is having dual benefits. This

refers to social perspective that is added in uncontrollable factor and has higher chances of

creating differences. The negotiations with countries can be done after influenced by their

culture. The study of Kania (2010) describes the similar concept that factors of culture are

important in international commerce because of values, language and lifestyle that is different

from one environment to other. The agricultural products exported by Morocco are used in UK

however, there are many vegetables products such as spices which are not common in UK and

because of cultural differences these are grown in Morocco but not exported to UK. Another

major factor of cultural implication is the language barrier which the locals are having. These

people are not educated and because of which they are not familiarize with English. Bribery has

been a culture in Morocco that can have an impact on the trading among both the countries. This

creates a negative impact and because of which Morocco has to take come concrete steps

through which they can ensure more productivity with no bribery and all of the expenses the
country is having from this trade deal and business should be invested in the prosperity of

country.
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