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A regional computable general equilibrium analysis of the demand and ‘efficiency spillover’ effects of foreign direct investment

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Inward Investment Technological Change and Growth

Abstract

Despite government rhetoric concerning indigenous development, the attraction of foreign direct investment (FDI) remains a central plank of UK regional policy. The majority of studies of the regional impact of FDI concentrate on demand-side effects and use standard Keynesian or input–output multiplier methods.2 However the benefits from FDI are no longer thought to be limited solely to a stimulus to employment from additional demand. Indeed the focus of much recent work, especially at the level of the national economy, has been on supply-side issues, particularly the identification of ‘efficiency spillover’ effects from FDI to the indigenous sector. This issue is considered directly in several of the papers in this volume, with previous research being summarised in the paper by Blomstrom et al. In Gillespie et al. (1998) we argue that the identification of the regional system-wide demand-side effects ofassisted investment should incorporate capacity constraints and labour market displacement. This is not possible with the standard multiplier models. The argument for supply-side modelling holds a fortiori for the identification of the system-wide impacts of efficiency spillovers that operate primarily through changes in relative prices.

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© 2001 National Institute of Economic and Social Research

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Gillespie, G., McGregor, P.G., Swales, J.K., Yin, Y.P. (2001). A regional computable general equilibrium analysis of the demand and ‘efficiency spillover’ effects of foreign direct investment. In: Pain, N. (eds) Inward Investment Technological Change and Growth. Palgrave Macmillan, London. https://doi.org/10.1057/9780230598447_7

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