Skip to main content

Inward investment and technical progress in the UK

  • Chapter
Inward Investment Technological Change and Growth

Abstract

Theories of the multinational firm (Dunning, 1988a) and econometric evidence on the determinants of foreign direct investment (FDI) (Barrell and Pain, 1997, 1999b) both highlight the extent to which the decision to establish foreign subsidiaries is influenced by the need to appropriate the rents accruing from investment in firm-specific knowledge-based assets and practices. Many new theoretical models also view the creation and exploitation of knowledge as the key factors driving the process of economic growth (Aghion and Howitt, 1998; Grossman and Helpman, 1991). Hence foreign-owned firms may help to transmit new ideas and technologies across national borders, particularly to industrialised economies and regional markets with location-specific advantages. This suggests that the location of economic activity could be an important endogenous influence on national growth prospects. In this chapter we present new evidence on the impact of inward investment on technical progress, and hence labour productivity and growth, in a number of different UK industries. We utilise two different data sets and a number of different estimation techniques in an attempt to assess the robustness of our findings.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Similar content being viewed by others

References

  • Aghion, P. and Howitt, P. (1998), Endogenous Growth Theory, Cambridge, Mass., MIT Press.

    Google Scholar 

  • Barrell, R. and Pain, N. (1997), ‘Foreign direct investment, technological change and economic growth within Europe’, Economic Journal, 107, pp. 1770–86.

    Article  Google Scholar 

  • (1999a), ‘Trade restraints and Japanese direct investment flows’, European Economic Review, 43, pp. 29–45.

    Google Scholar 

  • (1999b), ‘Domestic institutions, agglomerations and foreign direct investment in Europe’, European Economic Review, 43, pp. 925–34.

    Google Scholar 

  • (1999c), ‘Foreign direct investment, innovation and economic growth within Europe’, in Driver, C. and Temple, P. (eds.) Investment, Growth And Employment: Perspectives For Policy, Routledge Press.

    Google Scholar 

  • Barrell, R., Pain, N. and Young, G. (1996), ‘The cross-country demand for labour in Europe’, Weltwirtschaftliches Archiv, 132, pp. 638–50.

    Article  Google Scholar 

  • Blomstrom, M. (1986), ‘Foreign investment and productive efficiency: the case of Mexico’, Journal of Industrial Economics, 35, pp. 97–110.

    Article  Google Scholar 

  • Blomstrom, M. and Sjoholm, F. (1999), ‘Technology transfer and spillovers: does local participation with multinationals matter?’, European Economic Review, 43, pp. 915–23.

    Article  Google Scholar 

  • Cameron, G., and Muellbauer, J. (1996), ‘Knowledge, increasing returns and the UK production function’, in Mayes, D. (ed.), Sources of Productivity Growth, Cambridge, Cambridge University Press.

    Google Scholar 

  • Caves, R.E. (1974), ‘Multinational firms, competition and productiv ity in host-country markets’, Economica, 41, pp. 176–93.

    Article  Google Scholar 

  • Coe, D. and Helpman, E. (1995), ‘International R&D spillovers’, European Economic Review, 39, pp. 859–87.

    Article  Google Scholar 

  • Crafts, N. (1996), ‘Deindustrialisation and economic growth’, Economic Journal, 106, pp. 172–83.

    Article  Google Scholar 

  • Crafts, N. and Toniolo, G. (1996), Economic Growth In Europe Since 1945, Cambridge, Cambridge University Press.

    Book  Google Scholar 

  • CSO (1980), Standard Industrial Classification Revised 1980. Reconciliation with Standard Industrial Classification 1968, London, Cabinet Office.

    Google Scholar 

  • (1994), Report on the Census of Production: Analysis of Production Industries by Standard Industrial Classification Revised 1992, Business Monitor PA 1002.1.

    Google Scholar 

  • Davies, S.W. and Lyons, B.R. (1991), ‘Characterising relative performance: the productivity advantage of foreign owned firms in the UK’, Oxford Economic Papers, 43, pp. 584–95.

    Google Scholar 

  • Dunning, J.H. (1988a), ‘The eclectic paradigm of international production: a restatement and some possible extensions’, Journal of International Business Studies, 19, pp. 1–31.

    Article  Google Scholar 

  • (1988b), ‘US and Japanese manufacturing affiliates in the UK: comparisons and contrasts’, in Dunning J.H., Explaining International Production, Harper Collins.

    Google Scholar 

  • Globerman, S. (1979), ‘Foreign direct investment and ‘spillover‘ efficiency benefits in Canadian manufacturing industries’, Canadian Journal of Economics, XII, pp. 42–56.

    Google Scholar 

  • Griffith, R. (1999), ‘Using the ARD establishment level data to look at foreign ownership and productivity in the United Kingdom’, Economic Journal, 109, pp. F416-42.

    Article  Google Scholar 

  • Griliches, Z. (1998), R&D and Productivity: The Econometric Evidence, Chicago, University of Chicago Press.

    Book  Google Scholar 

  • Grossman, G.M. and Helpman, E. (1991), Innovation and Growth in the Global Economy, Cambridge, Mass., MIT Press.

    Google Scholar 

  • Harvey, A.C., Henry, S.G.B., Peters, S. and Wren-Lewis, S. (1986), ‘Stochastic trends in dynamic regression models: an application to the employment-output equation’, The Economic Journal, 96, pp.975-H5.

    Article  Google Scholar 

  • Hubert, F. and Pain, N. (1999a), ‘Inward investment and technical progress in the United Kingdom’, paper presented at European Association for Research in Industrial Economics Annual Conference, Turin, September.

    Google Scholar 

  • (1999b), ‘Foreign direct investment, spillovers and technical progress in the UK’, paper presented at the Money, Macro and Finance Research Group Annual Conference, Oxford, September.

    Google Scholar 

  • Keller, A. (1989), ‘Econometrics of technical change: techniques and problems’, in Hackl, P. (ed.), Statistical Analysis and Forecasting of Economic Structural Change, Hamburg, Springer-Verlag.

    Google Scholar 

  • Kremers, J.J.M., Ericsson, N.R. and Dolado, J.J. (1992), ‘The power of cointegration tests’, Oxford Bulletin of Economics and Statistics, 54, pp. 325–48.

    Article  Google Scholar 

  • Larsson, R., Lyhagen, J. and Lothgren, M. (1998), ‘Likelihood-based cointegration tests in heterogeous panels’, Stockholm School of Economics Working Paper Series in Economics and Finance No. 250.

    Google Scholar 

  • Nelson, R.R. (1966), ‘The CES production function and economic growth projections’, Review of Economics and Statistics, XLVIII, pp. 326–28.

    Google Scholar 

  • Nickell, S. (1981), ‘Biases in dynamic models with fixed effects’, Econometrica, 49, pp. 1399–416.

    Article  Google Scholar 

  • O‘Mahony, M. and Wagner, K. (1994), ‘Changing fortunes: an industry study of British and German productivity growth over three decades’, National Institute of Economic and Social Research, Report Series No. 7.

    Google Scholar 

  • Oulton, N. (1998), ‘Labour productivity and foreign ownership in the UK’, National Institute of Economic and Social Research Discussion Paper No. 143.

    Google Scholar 

  • Pesaran, M.H. and Smith, R. (1995), ‘Estimation of long-run relationships from dynamic heterogenous panels’, Journal of Econometrics, 68, pp. 79–114.

    Article  Google Scholar 

  • Pesaran, M.H., Shin, Y. and Smith, R.P. (1999), ‘Pooled mean group estimation of dynamic heterogenous panels’, Journal of the American Statistical Association, 94, pp. 621–34.

    Article  Google Scholar 

  • Rodrik, D. (1997), ‘TFPG controversies, institutions and economic performance in East Asia’, NBER Working Paper No. 5914.

    Google Scholar 

  • Romer, P. (1993), ‘Idea gaps and object gaps in economic development’, Journal of Monetary Economics, 32, pp. 543–73.

    Article  Google Scholar 

  • Solomon, R.F. and Ingham, K.P.D. (1977), ‘Discriminating between MNC subsidiaries and indigenous companies: a comparative analysis of the British mechanical engineering industry’, Oxford Bulletin of Economics and Statistics, 39, pp. 127–38.

    Article  Google Scholar 

Download references

Authors

Editor information

Editors and Affiliations

Copyright information

© 2001 National Institute of Economic and Social Research

About this chapter

Cite this chapter

Hubert, F., Pain, N. (2001). Inward investment and technical progress in the UK. In: Pain, N. (eds) Inward Investment Technological Change and Growth. Palgrave Macmillan, London. https://doi.org/10.1057/9780230598447_3

Download citation

Publish with us

Policies and ethics