Deglobalisation shocks, cross-border lending and positive effects of internal capital markets using the Brexit referendum as a case in point
The outcome of the Brexit referendum in June 2016 brought about an abrupt increase in political and economic uncertainty. In a new study, we show that German banks reduced lending to firms in the United Kingdom (UK) following the referendum. These firms reduced employment and investment as a result of the credit supply shock. Multinational corporations in the UK were able to mitigate this decline in external financing by making greater use of internal capital markets operated within their international corporate structures. Our study shows that the outcome of the Brexit referendum put pressure on the UK economy via indirect channels as well. Moreover, it highlights the role of multinational corporations, which were better able to mitigate the impact.
| Björn Imbierowicz, Arne Nagengast, Esteban Prieto, Ursula Vogel
