DOES BREXIT MATTER FOR FIRMS’ INNOVATION?

Abstract

Investigating the effects of Brexit on firms’ innovation behavior is pivotal to understand future possible economic growth and welfare effects of such policy decisions in the UK. By applying a difference-in-difference (DID) methodology on a sample of 2846 firm-year observations from 2013 to 2018, we address this question observing a decrease in UK firms’ research and development expenses compared to European firms. Specifically, we observe an R&D decrease of UK firms of about 10%, and of about 1.3% compared to EU firms. Our results offer important evidence for policymakers and UK regulators, warning on the future detrimental impact of Brexit on UK firms’ innovation policies.

Keywords

• R&D
• Brexit
• difference-in-difference
• innovation