The United Kingdom has been a member of the European Union for many decades. In many cases, the UK bargains with the rest of the world via the EU on economic matters. This prolonged close ties in economic and social affairs have positive and negative impacts on UK’s investment. The impact on investment is based on the flow of capital, immigration laws, access to member and non-member country’s market among other economic relationship bargained on EU platform.
This membership has several negative economic implications on the level of investment in UK. One of the negative impacts is the excessive government expenditure on UKIP. The total social security expenditure resulting from the EU membership stood at around eighty-three billion pounds in 2012. This amount can be invested in productive projects if the country is a non-EU member (Tejvan).
The UK level of investment is suffering from inefficient investment policies especially the Common Agricultural Policy (Tejvan). This policy has brought inefficiencies in the food industry by placing food price floor. The policy has raised the CPI. Moreover, consumers spend a large proportion of their income on food decreasing the amount available for other products. This lowers the aggregate demand of non-food firms, and this lowers their rate of expansion.
The total government spending has been influenced by unnecessary austerity measures. Since 2008, the union has pressed member countries to reduce their budget deficits. This decreased deficit has affected the extent to which the UK can use expansionary fiscal policies to grow the level of investment. Thus, the country has unnecessary faced prolonged economic stagnation. Exit from EU can allow the government to increase its deficit and invest in several sectors to create employment opportunities (McHugh).
The free movement of people across member countries has crowd UK cities. The country’s population is set to grow to 70 million in the next ten years. The increased population will create demand pull inflation. Moreover, the increase in population forces the government to increase its spending on public utilities. This money could have been used in different investments (Hubbard, 40).
Lastly, EU brings unnecessary restrictions on the country’s ability to negotiate with other non-EU countries. The decisions made between trading partners and EU may not perfectly fit the demands of the county. Moreover, decision making is taken far away from the local investors. Thus, some decisions are against their investment aspirations (Hubbard, 34). This has restricted the growth of trade between the UK and other nations. The graph below shows how the growth of trade between the UK and other nations has changed since 1998. The growth has been highest within the EU block. This shows that the EU has not negotiated good trading deals for UK with countries whose economy has been growing at a fast rate.
In the graph it is clear that the trade between UK and China has grown at a slow rate of 1.1% despite the fast growth of Chinese economy. UK can negotiate better trade agreement with China and USA if it exits EU.
The country’s membership in EU brings a couple of demerits. The main demerits are based on immigration and several policy restrictions. The economic restriction on agricultural product prices and the size of a country’s deficit have a negative effect on investment.
Work cited
CBI. "Factsheet 2 - Benefits of EU Membership Outweigh Costs - CBI." Factsheet 2 - Benefits
of EU Membership Outweigh Costs - CBI. 2016. Web. 08 Apr. 2016. <http://news.cbi.org.uk/reports/our-global-future/factsheets/factsheet-2-benefits-of-eu-membership-outweigh-costs/>.
Giles, Chris, and Emily Cadman. "Economists’ Forecasts: Brexit Would Damage Growth."
Financial times. 3 Jan. 2016. Web. 08 Apr. 2016. <https://next.ft.com/content/1a86ab36-afbe-11e5-b955-1a1d298b6250>.
Hubbard, R. Glenn. Macro Economics. Frenchs Forest, N.S.W.: Pearson Prentice Hall, 2009.
Print.
McHugh, Jonathan. "What Are the Economic Consequences of Brexit?" Financial times. 22 Feb.
2016. Web. 8 Apr. 2016. <https://next.ft.com/content/70d0bfd8-d1b3-11e5-831d-09f7778e7377>.
Tejvan. "Disadvantages of EU Membership." Economics Help. 2015. Web. 08 Apr. 2016.
<http://www.economicshelp.org/europe/disadvantages-eu/>.
