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BUS510 Fundamentals Of Innovative Business

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Course Code: BUS510
University: Ashford University

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The drivers of Brexit were political/cultural; the impact of Brexit will be on business and the economy. Explain and critically analyse this statement.
Module learning outcomes
1) Apply the main concepts and identify the main elements of international economic integration.2) Explain and critically analyse the applicability of main theories on the nature of regional economic integration processes.3) Have a critical understanding of the role and functions of each European institutions and appreciate the dynamic interaction between them.4) Evaluate and explain the role of business as an actor in the policy making context at the regional (especially EU) level relative to the national and global levels.


The term economic integration refers to the amalgamation of various economic policies between two or more countries (Balassa2013). This unification is achieved by the process of partial or full removal of tariffs on trade before the process of integration. When economic integration takes place then the goods are sold at a comparatively lower price. This is so because of the fact that the goal of such economic integration is to increase the welfare of the consumers while increasing the sales as well as the productivity. The major elements of international trade integration can be described in seven stages. These are preferential trading area, common market, customs union, free trade area, monetary and economic union, economic union and complete economic integration.
The complete economic integration is the highest form of unification that can occur between the states. The European Union is an economic and political union that enabled free trade of goods and services within Europe.
Brexit means “British exit”. It refers to the decision of the United Kingdom (UK) to make an exit from the European Union (EU). The decision was taken by the United Kingdom on June 26, 2016. The decision was taken based on the poll in which the supporters of Brexit won by a majority of 53.4 percent (Curry 2016). As announced by Prime Minister Theresa May, the United Kingdom government has made up their mind that they would not involve in the European Union. In the following section of the report an analysis has been conducted regarding the drivers of Brexit that is whether the reasons are political or cultural. Further, the business and economic impacts of Brexit on the United Kingdom economy has been discussed in details in the report.
Several cultural, economic as well as political reasons are associated with Brexit. Cultural factors that might have influenced the voting pattern are the working environment of the employees (Arnorsson and Zoega2018). The social environment of the workers plays a key role in such voting patterns. Workers get along well in those places where they have like-minded people. Social ties become stronger in those areas where people get along well with their colleagues. In case of the United Kingdom, due to internationalization of the market, several foreign labourers were working side by side along with the local labourers. This created a disparity among the workers. As thought by many workers this internationalization might become a threat towards their culture. The foreign workers might not value the English culture and thus resulting in such a situation. Another important reason for voting in favour of the Brexit is that the immigration crisis in Europe was very high. Some of the leaders of the European Union tried to lay emphasis on the refugees. They saw this as a moral obligation. However, the natives of the United Kingdom saw this as a threat as these refuges affected the internal life of the nation. The refuges were taking up the jobs that should have been given to the natives. Thus, the natives were insecure and voted in favour of the Brexit (Dennison and Carl 2016). Another reason that may be accounted for such a voting pattern is that the citizens of the United Kingdom have lost their trust on majority of such multinational trade, defence and financial organisations. They believe that these organisations take the control away from the individuals. This fear of losing control and the mistrust among the workers were also reasons for the support of the Brexit. These are the cultural reasons as to why Brexit was imposed in the United Kingdom.  
The economic reason as to why voters choose to vote in favour of the Brexit. Most of the local jobs in majority of the regions of the United Kingdom are significantly dependent on the foreign economic associations or ties. However, the interesting fact is that the labourers in various regions of the United Kingdom are openly rejecting the process of internationalization by casting their vote against the links with the European Union. This is a very interesting topic as to why are these workers are voting in favour of Brexit. Domestic labourers of the United Kingdom compete with other labourers of the foreign locations. This competition occurs because there are inflows of imported goods. The goods that are imported into the local market are generally sold at a much lower price than the domestically produced goods. This mainly occurs because of cheap labour inputs in those regions. However, many domestically employed workers also belong to this local market producing domestic goods. Thus the domestic employees are employed by both the local and the foreign markets. The employees belonging to the domestic market might want to exclude the import of the cheap foreign goods in order to reduce the competitiveness in the domestic market. Thus, it is very clear why workers are in favour of Brexit. Thus reducing competitiveness in the domestic market is the economic reason as to why voters decided to vote in favour of the Brexit.
There are basically two political parties in Britain namely the Labour Party and the Conservative party. Both of the parties were in favour of remaining with the European Union. However, many members belonging to the above parties were against this motion (Hobolt 2016). These people did not want to remain with the European Union because of the various cultural and economic factors. These went together to form a union which raised their voice against the European Union (Riley and Ghilès 2016). Thus, ultimately the situation was like a three way problem. The two most renowned parties of Britain wanted to stay with the European Union whereas the third one formed out of the two established parties opposed this fact. The ideas of people belonging to the third group clashed with the ideas of the major parties of Britain. In the broader sense these third party members were against the British elite. The supporters of Brexit believed that the reckless operation of the financial sector has created a disaster for large number of people. The financial market was incompetent too and failed in a miserable way. The most important thing is that the voters lost their faith on the politicians, intellectuals and the business leaders. The voters thought that these politicians, intellectuals and the business leaders have lost their control and right to the system and they are busy thinking about their own profits. The voters thought that the elites have become corrupt and serving their own interests and forgetting their service to the nation. This is the major political reason for the support of Brexit.
The introduction of Brexit leads to various business and economic impacts on the United Kingdom. The following section discusses the benefits and the costs of Brexit that is experienced in the United Kingdom. The report that is released by the International Monetary Fund in July 2016 warned about the risks that are associated with the Brexit. There would be huge costs and this Brexit which is a disorderly leaving will result in worse outcomes.  
Talking about the long term macroeconomic effects, various models have been used to ti identify the long term effects and all of them have suggested that there would be long term loss in the gross domestic product of the nation (Ebell, Hurst and Warren 2016). The range of such loss in the gross domestic product is as large as 10 percent (Baker, Bloom and Davis 2016). The main reason for such a loss is because of the fact that the European Union was a single market and shifting from that creates a new regime, a new system for the United Kingdom’s market which would have to face many restrictions. The least damaging impact would be faced by the industries that had least restrictions and was member of the European Union whereas, the most damage would be faced by the in those areas that will create new barriers to trade in the United Kingdom as well as inwards investment.
The short term macroeconomic impacts that will arise due to the Brexit are a negative shock to the economy. The proponents of Brexit themselves confess this economic phenomenon. However the there is still a dispute over this matter. The duration of the effect of Brexit and costs that the economy has to bear are still a major area of concern. The costs that the economy would face will they have a permanent effect or a short term effect is still a matter of argument (Bakeret.al2016). Other short term effect that may arise is financial instability that could be disastrous because of the openness of the financial market of the United Kingdom.  This can be seen as the drop in the value of pound in the recent months. The pound sterling has hit a record low of which is primarily because of the fact that most of the large in the United Kingdom derive majority of their profit from abroad. The pound dropped to a significant 10 percent against the United States dollar and 7 percent against that of the Euro (PlakandarasGupta andWohar2017). The value of pound depreciated to such an extent that the performance of the Pound was as low as that of the Argentine peso. However, this weaker pound would benefit the export industries like that of super cars, computers, electronics, aerospace and pharmaceuticals.The rate of inflation has remained low at 2.4 percent in the June(Clarke,Serwicka and Winters2017). The prices of petrol have risen to significant levels in the past four years. This price hike was countered by a fall in the prices of clothing, computer games and to some extent the airlines fare. The trade deficit that existed between the imports and exports of the country narrowed slightly in the month of May despite weak growth in the exports for manufactured goods.
The Brexit has also affected the jobs market in a significant way. As there is a loss in the gross domestic product, by macroeconomic principle there ought to be a lower level of unemployment in the United Kingdom economy (Mankiw 2014.)The demand from the other European Union nations for the final product of United Kingdom’s goods constitutes to around 12 percent and this means that there are around 3.3 million jobs created in the economy (Simionescu, Strielkowski and Kalyugina2017). However this is not true as few campaigners mean that these jobs are created at the risk of Brexit which might not become true. Nevertheless, in few sectors of the economy job losses are likely to occur and in other sectors because of Brexit there would be increase in the jobs. These job losses and employment both depend on the fact that what replaces the present arrangements. Job losses are likely to occur in the city of London if there are barriers to export to the European Union nations as this city manufactures items that are exported (Springford and Whyte 2014). Another market that can see increase in the employment is the import industry of the country. This industry would experience an increase in employment as the exit from the European Union would mean lesser amounts of regulations. Further, the industries might also become competitive in nature as a result of new trade structures that introduces new cost of imports or reduced regulations that the industries faced while they were a part of the European Union (Lea 2016). There has been a rise in the weekly earnings by 2.5 percent in the recent three months to May 2018. However, the level of unemployment rate was unchanged at 4.2 percent. The service sector of the United Kingdom’s economy is growing in leaps and bounds. This service sector is the major engine for creation of jobs and also a source of export of services. From the period of 1997 to 2013 the share of this service sector in the United Kingdom’s total export increased from 28 percent to 41 percent(Ons.gov.uk 2018). Because of this increase in the total share there was a rapid growth in the important service activities like the business and financial services. The importance of this services sector has increased in leaps and bounds because of their ability to export services and also competing with the major export industries like that of super cars, computers, electronics, aerospace and pharmaceuticals.Therefore this sector is the major source of creation of jobs after the Brexit.
The effect of Brexit on the United Kingdom economy’s public finance is that it will allow United Kingdom to save the current payments that they used to pay to the European Union. The United Kingdom’s contribution to the European Union was nearly 13 billion pounds in the year 2015. Each year the net contribution was nearly 805 billion pounds (Emmerset.al2016). When the government left the European Union, it has saved these huge chunks of money. The contribution of the United Kingdom’s government to the European Union was huge in amount. However this savings in the economy’s current payment will be wiped out if there is a loss in the gross domestic product of the UK economy. In other words the public finances will be worse off despite of no payment to the European Union. During the period of 2014 it was assumed that the weekly savings of the United Kingdom’s government will around 280 million pounds per week and not the estimated 350 million per week (Haas and Rubio 2017). This is so because of the fact that the amount sent to Brussels by the United Kingdom government is the amount from which the rebate has been deducted. Thus these hypothetical measures are not at all useful for the estimation procedures. Therefore, only 280 million pounds are available for the economy. However, some of the groups in the United Kingdom like that of the farmers, universities which succeeded in obtaining huge grants under the European Union might face lack of such grants and a potential loss from the Brexit (Nugent 2017). The areas of the Isles of Scilly, West Wales and the Valleys would incur severe losses due to Brexit as these areas were immensely benefited from the European Union’s policies. Thus the post Brexit United Kingdom’s government would have to replace the flows of around 6 billion pounds that is nearly 115 pounds per week that the economy used to earn when it was under European Union (theOECD 2018).
The financial institutions that are working in the United Kingdom like that of Bank of England and other banks have raised over 130 billion pounds of new capital and the amount of high quality of liquidity assets are more than 600 billion pounds(News 2018). This increase in the liquidity and capital will increase the flexibility of the banks and the banks would be able to lend in more amounts to the business man and even households. However the share prices of the leading five banks of England fell by 21 percent (Begg and Mushövel2016). After Brexit, the United Kingdom will also lose the pass porting right for the European Union financial service. United Kingdom will also lose the access to euro settlements and clearing. This is the main reason why London was so much attractive in terms of the financial sector (Schoenmaker 2017).
The economic effects on the phenomenon of migration are also a major concern. The inflow of employees from the European Union was very beneficial on the supply of the labour market and also in many public services that relied on the European Union. The employees of the European Union are more likely to be employed as compared to their indigenous counterpart and also make positive contributions to United Kingdom’s public finance. However, because of the Brexit will ease the pressure on the local housing and services (Wadsworth et.al.2016). The natives of the United Kingdom are more likely to be involved in various production procedures and thus increase the employment among the natives. However, most of the employed local citizens might not be that much efficient and the quality of the goods might decrease.
From the above report it can be concluded that only one factor is not the driver of Brexit in the United Kingdom economy. All the cultural, economic as well as the political factors are responsible for the Brexit. The formation of the third party from the existing two established political parties led to the formation of the Brexit. This third party raised a concern on the various cultural and economic problems that is faced by the locals of the United Kingdom. The natives were facing high unemployment rate because of the migration of labourers. Moreover, majority of the citizens in the United Kingdom lost faith in the existing financial institutes. Thus this newly formed third party received immense amount of support from these members of the society. Further, the finished products that are supplied in the market by the European Union were comparatively low priced thus the local producers were unable to compete with the Union. Thus, in order to reduce the competitiveness and capture a large shares of the United Kingdom’s economy these individuals also in favour of the third party and supported the Brexit. Taking consideration of all the cultural and economic factors the political party was able to introduce Brexit in the economy.
The economic impact of the Brexit has both positive and negative effects. The long run growth of the economy would reduce drastically. In the short run the economic growth of the economy also came to a halt. The functioning of the financial market was very poor. There was depreciation in the value of pound. The inflation rate, however, was very low due to Brexit. The rate of creation of jobs in few locations of United Kingdom increased but, in places where the influence of European Union was high there was unemployment. However, the creation of jobs was significant after Brexit. The payments that were made by the government of UK to the EU have reduced drastically. However, the amount that was saved is not efficiently used as the gross domestic product has not increased to that level. Further, the capital created by the banks also increased and a relatively large amount of money was available for loans to the businessmen and common household. Finally, the immigration of the employees has reduced comparatively due to Brexit. The natives have been successful in obtaining jobs. However, the quality of the goods produced by these employees is still a question.
Arnorsson, A. and Zoega, G., 2018. On the causes of Brexit. European Journal of Political Economy.
Baker, J., Carreras, O., Ebell, M., Hurst, I., Kirby, S., Meaning, J., Piggott, R. and Warren, J., 2016. The Short–Term Economic Impact of Leaving the EU. National Institute Economic Review, 236(1), pp.108-120.
Baker, S.R., Bloom, N. and Davis, S.J., 2016. Policy uncertainty: trying to estimate the uncertainty impact of Brexit. Presentation, September, 2.
Balassa, B., 2013. The theory of economic integration (routledge revivals). Routledge.
Begg, I. and Mushövel, F., 2016. The economic impact of brexit: jobs, growth and the public finances.
Clarke, S., Serwicka, I. and Winters, L.A., 2017. Will Brexit raise the cost of living?.National Institute Economic Review, 242(1), pp.R37-R50.
Curry, S., 2016. What is the meaning of Brexit?.EMBO reports, 17(9), pp.1239-1240.
Dennison, J. and Carl, N., 2016. The ultimate causes of Brexit: history, culture, and geography. British Politics and Policy at LSE.
Ebell, M., Hurst, I. and Warren, J., 2016. Modelling the long-run economic impact of leaving the European Union. Economic Modelling, 59, pp.196-209.
Emmerson, C., Johnson, P., Mitchell, I. and Phillips, D., 2016. Brexit and the UK’s Public Finances (No. R116). IFS Reports, Institute for Fiscal Studies.
Haas, J. and Rubio, E., 2017. Brexit and the EU budget: Threat or opportunity. Jacques Delors Institute Policy Paper, 183.
Hobolt, S.B., 2016. The Brexit vote: a divided nation, a divided continent. Journal of European Public Policy, 23(9), pp.1259-1277.
Lea, R., 2016. Brexit really does mean Brexit: Article 50 to be triggered by end-March 2017. Arbuthnot Banking Group, 10.
Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.
News, p. (2018). News, publications and events. [online] Bankofengland.co.uk. Available at: https://www.bankofengland.co.uk/publications/Documents/speeches/2015/euboe211015.pdf [Accessed 25 Sep. 2018].
Nugent, N., 2017. The government and politics of the European Union. Palgrave.
Ons.gov.uk. (2018). Economic output and productivity – Office for National Statistics. [online] Available at: https://www.ons.gov.uk/economy/economicoutputandproductivity [Accessed 25 Sep. 2018].
Plakandaras, V., Gupta, R. and Wohar, M.E., 2017. The depreciation of the pound post-Brexit: Could it have been predicted?.Finance Research Letters, 21, pp.206-213.
Riley, A. and Ghilès, F., 2016. BREXIT: Causes and Consequences. Notes internacionals CIDOB, 159.
Schoenmaker, D., 2017. The UK financial sector and EU Integration after Brexit: The issue of passporting. In The Economics of UK-EU Relations (pp. 119-138). Palgrave Macmillan, Cham.
Simionescu, M., Strielkowski, W. and Kalyugina, S., 2017. The impact of Brexit on labour migration and labour markets in the United Kingdom and the EU. Terra Economicus, 15(1).
Springford, J. and Whyte, P., 2014. The consequences of Brexit for the City of London. London: Centre for European Reform.
theOECD. (2018). OECD data. [online] Available at: https://data.oecd.org/ [Accessed 25 Sep. 2018].
Wadsworth, J., Dhingra, S., Ottaviano, G. and Van Reenen, J., 2016. Brexit and the Impact of Immigration on the UK. CEP Brexit Analysis, (5), pp.34-53.

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