The global economy, over the years, has experienced huge dynamics and modifications in terms of international commercial relations, global patterns of economic growth and other economic attributes. With occurrence of global economic phenomena like Globalization, Liberalization and same, the economic environment has become more inclusive and integrated. This in turn indicates towards the fact that the of the implications occurrence of turmoil or dynamics in the economy of any country, especially the prominent economies across the world, do not remain constricted in the concerned country only (Harrod and O’Brien 2012).
The commercial relations among the different economies being more inclusive in the contemporary period, the effects of significant country specific phenomena are felt by the economy of the concerned country as well as by those with which the country commercially, politically and economically relates (Sassen 2013). These implications can be both negative as well as positive, which depends on the nature of the phenomenon occurring, the state of the economies of the concerned countries and the internal as well as international economic framework.
The essay takes this in consideration and tries to analyze the effect of such economic phenomenon on the economy of the concerned country, taking into account the recent phenomenon of what is popularly known as the “Brexit” which occurred in Britain. Stating the significance and implementation of the same, the essay tries to examine and critically evaluate the impact of the same on the external international business environment in which the United Kingdom ventures and operates (Inglehart and Norris 2016).
To understand the significance of Brexit, it is required to highlight the European Union as it is directly linked to the same prospective phenomenon. Established after the Second World, the European Union is the economic as well as political union of twenty-eight countries in Europe. The main objective behind the formation of the European Union was to drive the economic growth of the member countries upwards, by facilitating the formation of a single market for the member nations (Richardson and Mazey 2015).
The notion behind the development of such a concept was that the countries with strong trade and commercial relations with each other try to grow together and in general avoid creating tensions among them. With the initiation and implementation of the European Union, the system of common currency, Euro, was also introduced for its member countries. The European Union, apart from having its own currency system, used by 19 member countries, also has its own parliamentary system (Greenwood 2017). There exists same set of rules, business environment, consumer rights and other facilities for the member countries, which makes trading activities easy among them as they do not need to worry about the exchange rates and other monetary parameters.
One of the major economic phenomenons in the contemporary history of the United Kingdom is the proposal on part of the United Kingdom to leave the European Union, which was first put forward by a referendum of the participating electorate of the country on 23rd June, 2016. Among the total proportion of the electorate (72.2% of the total body) who participated in the referendum, specifically 51.9% voted in favor of the withdrawal of the United Kingdom from the European Union. The public opinion of the citizens of the United Kingdom had a mixed pattern but the same was also biased in favor of the withdrawal of the country from the European Union. The withdrawal has been scheduled to be occurring on 29 th March, 2019 (Dorling 2016).
Britain has been one of the primary members of the European Union, since its formation and execution in the European scenario. The main reason behind the involvement of UK in the European Union was to facilitate the economic and industrial growth of the region and betterment of its residents in terms of employment, income generation, commercial prospects and overall standard of living of the same. However, in the recent few years, the performance of the economy of UK has not been as impressive as expected, which gave rise to disappointment among majority of the people, much of which was against the European Union.
There remain several reasons behind the mass decision of breaking out from the European Union on part of the United Kingdom. Among them the significant ones are being elaborated in the following sections:
One of the primary reasons behind the decision of withdrawal of the United Kingdom from that of the European Union is primarily economic. According to many of the opponents of the European Union, the main objective of the EU, which was of increasing the overall economic wellbeing of the member countries, was not operating efficiently. The European Union has over the years, according to them, become dysfunctional and had failed considerably in addressing the problems which have been cropping up in the economies of the member countries. The allegations brought forward by the opponents could not be completely ignored.
The unemployment rate of the United Kingdom, in the last few years had been considerably high, which can be seen from the following figure:
Figure 1: Unemployment Rate of UK over the years
(Source: Bell and Blanchflower 2013)
As can be seen from the above figure, the rate of unemployment of the United Kingdom can be seen to be more or less high (remaining above 4% and reaching as high as more than 8% in the fourth quarter of 2011), which has been one of the most bothering issues of concern for the country. This shows the partial ineffectiveness of the European Union in eradicating the unemployment problem of the country.
In the contemporary scenario of United Kingdom, another issue of concern is the consistently increasing burden of immigration in the country from other parts of the world, especially from the economically or politically distressed and backward countries. Immigration has increased constantly and UK had to incorporate the same as EU supported the same as a social cause.
Figure 2: Net Migration in UK
(Source: Matti and Zhou 2017)
The increased migration, as can be seen from the above diagram, led to the need among the residents of the country of restoring the control of the borders in the hands of the country only (Tilford 2015).
Apart from the above two factors the demand for bringing back the sovereignty of the UK such that the decisions of the country can bed taken by the country itself, led to the voting of a major share of people in favor of the withdrawal from the European Union.
However, the proposed and already scheduled withdrawal, if implemented, can have considerable implications on the overall business environment of the United Kingdom as well as the external commercial framework in which the country usually operates. Much of these effects are expected to be adverse for the country, if proper and timely actions are not taken prior to the execution of the Brexit (Wadsworth et al. 2012).
The impacts of the potential withdrawal of UK from the European Union are as follows:
Exports of UK- A major share of the exports (Almost half of its total international exports) of the UK is to the European Union (UK exporting goods valuing nearly 133 billion pounds in 2015), which is facilitated by the Free Trade Agreement and the absence of trade barriers among the member countries of the EU. Leaving the EU, without negotiation of agreements with the same can lead to a huge loss on part of UK (Loss amounting to at least 4.5 billion pounds annually), due to the potential implementation of higher tariffs and import export duties. This can make the commercial environment of the country considerably less competitive in the EU as well as in the global economic framework in the near future (Kierzenkowski et al. 2016).
Single Market- The UK was one of the founders of the concept of the single market under the European Free Trade Association (1960). This single market formation has helped UK as well as the other member countries immensely to expand their commercial domain of operations. If withdrawal of the UK takes place and leads to change in the policies by the EU, then UK is expected to lose more than 75 billion pounds, which is much bigger if compared to the 9 million pounds, which the country needs to pay annually to the EU (Curtice 2016).
This, however, implies that there remains a scope of expansion of businesses of the other member countries of the EU with the UK losing out their share of the single market advantages.
Employment Scenario- One of the major implications of the Brexit, in the international scenario, is the expected dynamics, which the domestic employment scenario of the UK as well as the international employment scenario is expected to experience. Post the proposal and voting in favor of Brexit, the number of job seeking UK migrants, seeking job prospects outside that of the UK, has increased considerably, which can be seen from the following figure:
Figure 3: Dynamics in the number of Job Seekers Looking for jobs in Abroad
(Source: Forbes.com, 2017)
As can be seen from the above figure, post the declaration of the possible implementation of Brexit, the number of job seekers from UK, seeking jobs outside the country has increased hugely. This is because post Brexit, the unemployment rate of the UK is expected to increase to almost 6.5%, which is quite high for the country and which indicates towards a potential loss of nearly 500,000 jobs on part of the country.
This in turn implies that with the implementation of Brexit, due to the increasing tendency of job seeking by the residents of UK outside the country itself, the employment market in the international scenario is expected to feel an excess burden of unemployment but eligible job seekers in the market (Sumption 2017).
Foreign Investment flow- One of the major reasons for the involvement of the member of the European Union to enter in the Union itself is to facilitate the flow of foreign investment easily across the member countries, thereby facilitating the growth and productivity of the countries. UK also enjoyed the benefits of being a member of the EU, in terms of the inflow of the foreign investment, which facilitates the productivity of the country hugely (Goodwin and Heath 2016).
However, with the implementation of Brexit, the Foreign Direct Investment of the country is expected to reduce by as much as 22%. The huge bulk of foreign investors which the UK is expected to lose due to Brexit, can have negative implications for the country, whereas the same can create inflow of investments hugely for the other member countries of the European Union.
The effects of the potential withdrawal of the UK from the European Union, which is about to happen in the next year, is not only expected to have its implications on the economy and external business sector of the country itself, but is also expected to affect the other countries, especially those who have commercial tie ups with the country. These may be both positive as well as negative (Cumming and Zahra 2016). On one hand the imposition of the tariff and other restrictive barriers on the country, post its withdrawal from the EU is expected to increase the business prospects of the countries that specialize in those industries where UK ventures. However, on the other hand, countries like Ireland, Malta and other small and vulnerable economies are extremely prone to the repercussions and aftershocks of the Brexit. This is because much of their commercial prospects, imports and employment generation depends on their foreign capital inflow and outflow and their business relations with comparatively stronger economies of the EU, which includes the UK as well (Wright 2016).
Recommendations and Conclusion
From the above discussion, it can be asserted that the economic phenomenon of Brexit, which is expected to be implemented in the next year, is expected to have lot of implications, especially on the commercial environments in which the country operates. The impacts are expected to be falling on the business framework of the country, mostly adversely as well as on the other members of the EU who are vulnerable to the commercial aftershocks of Brexit. To prevent the negative outcomes, it is required on part of the UK to negotiate with the EU and form a modified Free Trade or Facilitated Trade agreements such that the existing business channels are not affected adversely.
References
Bell, D.N. and Blanchflower, D.G., 2013. Underemployment in the UK Revisited. National Institute Economic Review, 224(1), pp.F8-F22.
Cumming, D.J. and Zahra, S.A., 2016. International Business and Entrepreneurship Implications of Brexit. British Journal of Management, 27(4), pp.687-692.
Curtice, J., 2016. Brexit: Behind the referendum. Political Insight, 7(2), pp.4-7.
Dorling, D., 2016. Brexit: the decision of a divided country.
Forbes.com (2017). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/johnmauldin/2016/07/05/3-reasons-brits-voted-for-brexit/#451536401f9d [Accessed 7 Dec. 2017].
Goodwin, M.J. and Heath, O., 2016. The 2016 Referendum, Brexit and the Left Behind: An Aggregate?level Analysis of the Result. The Political Quarterly, 87(3), pp.323-332.
Greenwood, J., 2017. Interest representation in the European Union. Springer.
Harrod, J. and O’Brien, R. eds., 2012. Global unions?: theory and strategies of organized labour in the global political economy. Routledge.
Inglehart, R. and Norris, P., 2016. Trump, Brexit, and the rise of populism: Economic have-nots and cultural backlash.
Kierzenkowski, R., Pain, N., Rusticelli, E. and Zwart, S., 2016. The Economic Consequences of Brexit.
Matti, J. and Zhou, Y., 2017. The political economy of Brexit: explaining the vote. Applied Economics Letters, 24(16), pp.1131-1134.
Richardson, J. and Mazey, S. eds., 2015. European Union: power and policy-making. Routledge.
Sassen, S., 2013. Deciphering the global: its scales, spaces and subjects. Routledge.
Sumption, M., 2017. Labour immigration after Brexit: questions and trade-offs in designing a work permit system for EU citizens. Oxford Review of Economic Policy, 33(suppl_1), pp.S45-S53.
Tilford, S., 2015. Britain, immigration and Brexit. CER Bulletin, 30, pp.64-162.
Wadsworth, J., Dhingra, S., Ottaviano, G. and Van Reenen, J., 2016. Brexit and the Impact of Immigration on the UK. Centre for Economic Performance. LSE, pp.34-53.
Wright, W., 2016. The Potential Impact of Brexit on European Capital Markets. New Financial.
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