Foreign-Owned Firms and UK Economic Performance

Abstract

In the UK, as in other European countries, successive governments have attached considerable importance to inward investment and significant levels of public funds have been spent in order to attract foreign firms. This reflects an assumption that such firms transfer new technologies and knowledge across international borders with significant positive externalities for indigenous firms. If this was the case, the location of economic activity would be an important endogenous influence on the size of national economies. The Competitiveness White Paper issued by the UK Department of Trade and Industry in 1998 argued that foreign direct investment (FDI) is one of the main transmission mechanisms behind the diffusion of knowledge, both codified and tacit, across national borders (DTI, 1998). Previous Competitiveness White Papers suggested that the high level of inward investment into the UK during the 1980s helped to encourage the transfer of innovative production and managerial techniques to UK-owned companies, and improved the efficiency of their operations by enhancing product market competition (Eltis, 1996).KeywordsForeign Direct InvestmentGross Domestic ProductTotal Factor ProductivityTechnical ProgressWage BillThese keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.