Abstract copyright UK Data Service and data collection copyright owner.
The objective of this research was to undertake a quantitative analysis of the impact of inward investment on domestically-owned firms in the UK manufacturing sector in order to assess the hypothesis put forward in the Competitiveness White Paper that foreign firms have helped to raise the rate of labour productivity growth in the UK by transferring innovative production and managerial techniques. In particular the project wished to investigate: whether the presence of foreign-owned firms raises the rate of technical progress in domestic firms within the industry in which inward investment takes place. whether foreign investments in some industries also improve the performance of domestic firms in other manufacturing industries. whether there are significant differences in the demand for labour by domestic and foreign-owned firms. whether any conclusions are sensitive to different measures of the scale of UK operations by foreign-owned firms. whether there are significant differences in the 'spillover' effects of inward investments according to the nationality of the investor. whether any estimated effects from inward investment remain robust when other potential determinants of technical progress, such as imports and domestic R&D expenditures, are also included in the analysis. It has been confirmed that foreign-owned firms have a significant positive effect on the level of technical efficiency in domestic firms using an industry-level panel data set for the labour demand of domestic firms. This means that find ings in existing studies of a similar relationship for the aggregate manufacturing sector reflect genuine spillovers from foreign to domestic firms, rather than just a 'batting average' effect from a rising share of more productive fo reign firms. Evidence has been found of significant intra-industry and inter-industry spillovers from foreign firms. This means that inward investment policies designed to improve the general attractiveness of the UK as a business location through investment promotion, and improve the dissemination of new business practices across a wide range of industries, are likely to be of at least as much benefit as policies aimed at offering investment incentives in selected industries. Evidence has been found that the inward investment continues to have a significant positive effect on technical progress even when other factors such as imports and domestic R&D expenditures are allowed for. This provides robust evidence that inward investment is an important endogenous influence on the long-term prospects for economic growth in the UK. Inward investment appears to be a much more important source of technical progress than foreign trade.
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The dataset covers 18 two-digit level (SIC80) industries (22, 24, 25+26, 31, 32, 33+34, 35, 36, 37, 41+42, 43, 45, 46, 47 and 48). Most variables of the dataset are extracted from the Census of Production - data available for all firms located in the UK and for foreign-owned firms: total employment, gross value added at factor cost, wages and salaries for operatives, and wages and salaries for administrative, technical and clerical. Other variables include import volumes by industry and for the manufacturing sector, producer prices by industry, hours worked by industry, the stock of UK inward foreign direct investment by industry and for the whole manufacturing sector and the stock of research and development.
No sampling (total universe)
Compilation or synthesis of existing material
