Florence Hubert

Fiscal Incentives, European Integration and the Location of Foreign Direct Investment

Foreign direct investment in the European Economic Area (EEA) has grown rapidly in recent years. This paper tests for structural change in the geographical and industrial pattern of foreign direct investment in Europe using a panel data set on outward investment by German companies in the EEA since 1980. There is evidence of significant structural change since 1990, with nearly all locations and industries seeing a higher level of cross-border investment than might have been expected. We also investigate the scope for national governments to affect location choice through the use of fiscal instruments such as corporation taxes, investment in infrastructure and other forms of development grants and subsidies. The findings are mixed. Some measures, such as tax competitiveness, appear important but are sensitive to the specification of the model. However, the level of government fixed investment expenditure relative to that in other economies is found to have a significant positive impact, particularly in locations with less need for EU structural funds. Although the direct marginal impact appears relatively small, an additional finding of significant agglomeration forces suggests that fiscal policies could still have a permanent influence on the location of economic activities. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester

Inward investment and technical progress in the United Kingdom manufacturing sector

This paper investigates the impact of inward investment by foreign-owned companies on technical progress, and hence labour productivity, in the UK manufacturing sector. Using an industry-level panel data set we find that foreign-owned firms have a significant positive effect on the level of technical efficiency in domestic firms. There is evidence of significant intra-industry and inter-industry spilovers from inward investment. These findings remain robust even when other factors such as imports and domestic R&D expenditures are allowed for. Inward investment appears much more important source of technical progress than foreign trade. We also find that the impact of inward investment varies according to the nationality of the investing firm.

Inward Investment and Technical Progress in the UK Manufacturing Sector

This paper investigates the impact of direct investment by foreign-owned companies on technical progress and hence labour productivity in the UK manufacturing sector. Using an industry-level panel data set we find that foreign-owned firms have a significant positive effect on the level of technical efficiency in domestic firms. There is evidence of significant intra-industry and inter-industry spillovers from inward investment. These findings remain robust even when other factors such as imports and domestic R&D expenditures are allowed for. Inward investment appears to be a much more important source of technical progress than foreign trade ... Ce document etudie l’impact de l’investissement direct par des societes sous controle etranger sur le progres technique et, par consequent, la productivite du travail dans le secteur de l’industrie manufacturiere du Royaume-Uni. En utilisant un ensemble de donnees sectorielles en panel, nous trouvons que les societes sous controle etranger ont un impact positif significatif sur le niveau d’efficacite technique dans les firmes nationales. Il y a des signes de retombees intraindustrielles et interindustrielles significatives consecutives aux investissements entrants. Ces resultats demeurent robustes meme en tenant compte d’autres facteurs tels que les importations et les depenses R-D nationales. Les investissements entrants semblent etre une source plus importante de progres technique que le commerce exterieur ...

Inward investment and technical progress in the UK

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.

Foreign-Owned Firms and UK Economic Performance

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).

Economic Integration in Europe and the Pattern of German Foreign Direct Investment

Economic integration in Europe has been accompanied by a rise in foreign direct investment (FDI) within the EU economies. In virtually all member states, real inflows and outflows of direct investment after the mid-1980s reached their highest level since the initial formation of the Common Market, and the proportion of the aggregate stock of world FDI located within EU member states is estimated to have risen from 31 per cent in 1985 to 39 per cent by 1995 (UNCTAD, 1996). This reflects rising levels of investment in the EU by non-EU nationals and EU firms themselves. The surge in cross-border investment largely occurred in the aftermath of the Single European Act of 1986/7, during the gradual implementation of the measures required to complete the internal market.