Nigel Pain

FOREIGN DIRECT INVESTMENT, TECHNOLOGICAL CHANGE, AND ECONOMIC GROWTH WITHIN EUROPE*

The extent of multinational activity and the share of world trade accounted for by multinational enterprises has risen steadily over the past two decades. This has led to renewed interest within Europe in the impact of multinational enterprises on employment, investment and trade, and the structure of economic growth. In this paper the authors discuss the factors behind the continued growth of foreign direct investment and its wider consequences on home and host economies. They report evidence on the impact of production relocation on the export performance of a number of OECD economies, and investigate the extent to which technology transfer from foreign-owned firms has affected the rate of technical progress within the German and UK economies. The acquisition of firm-specific knowledge-based assets is found to be an important factor behind the growth of FD, suggesting that such investments are likely to be an important channel for the diffusion of ideas and technologies. Copyright 1997 by Royal Economic Society.

Domestic institutions, agglomerations and foreign direct investment in Europe

Abstract Recent developments in the economics of location emphasise the endogeniety of locational advantages during the process of European integration. We explore the relative importance of host country labour institutions and agglomerations using an industry-level panel data set on the location of investments by US multinational firms in Europe. The results indicate that centripetal and centrifugal forces are both important. New growth theories also suggest that international transfers of technology and knowledge through FDI may affect the performance of host economies. We consider the benefits from inward investment in four EU economies and present empirical evidence of significant spillovers from inward investment on technical progress. The potential for agglomerations to attract new investments which then influence the growth process has important implications for national policies, as it means that the size of nations is to be determined in the process of European integration, not just taken as given.

Trade restraints and Japanese direct investment flows

Abstract This paper analyses the factors determining the scale and location of Japanese foreign direct investment (FDI) over the 1980s. We use a pooled cross-section time-series annual data set covering investment in the individual EC countries and the United States. Our results suggest that, controlling for market size and relative labour costs, investment was significantly influenced by trade protection measures, and in particular by the level of anti-dumping actions initiated in the last decade. An additional effect from the cost of finance in Japan is found, suggesting that the tightening of monetary policy in Japan in 1989/90 contributed significantly to the observed slowdown in FDI in the early 1990s.

An Econometric Analysis of U.S. Foreign Direct Investment

This paper constructs a theoretical model of foreign direct investment and examines the extent to which the model can explain the level of outward direct investment by U.S. companies over the last two decades. The authors find that market size and factor costs, both labor and capital, are important factors in the investment decision. Instrumental variable estimation is used to demonstrate that the expectation of short-run fluctuations in the dollar also influences the timing of investment. Copyright 1996 by MIT Press.

Foreign Direct Investment in Central Europe Since 1990: An Econometric Study

FDI has become a importance source of external finance for several transitional economies, in particular those in Central Europe.The paper analyses determinants of FDI in Central Europe by providing econometric analysis. We examine the flows of FDI into the Czech and Slovak Federal Republics (CSFR), Hungary and Poland and attempt to explain both the factors that explain why foreign investors have moved into these markets so rapidly and why Hungary and the CSFR have attracted more FDI than Poland.

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.

The macroeconomic impact of UK withdrawal from the EU

We contribute to the ongoing debate about the benefits to the UK economy of membership of the European Union by assessing the macroeconomic consequences of withdrawal using simulation analyses on the NIESR macroeconometric model of the UK economy under endogenous fiscal and monetary policies. We draw on research that highlights the role of EU policies in the level of international trade and investment undertaken by Member States, and the implications of those international linkages for long-term productive potential. UK living standards would be adversely affected by withdrawal, largely due to a decline in the level of technical efficiency resulting from a lower future level of inward foreign direct investment.

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 ...

German Monetary Union: An historical counterfactual analysis

Abstract This paper views German Monetary Union as a sequence of large asymmetric shocks to the European economies. As such it can be analysed with a large, new-Keynesian macro-econometric model of the relevant economies such as NiGEM. The ‘news’ in the sequence of shocks is assessed by analysing contemporary, NiGEM based, forecasts, and important events are then ‘peeled-off’ in reverse order. The resulting counterfactual history analyses the effects of the collapse of the Soviet economy on the EC and Scandinavian economies, and it is argued that the recession in countries such as Finland was not primarily caused by trade effects. The costs of support programmes for East Germany are then removed, creating a negative fiscal shock. Finally the paper analyses the overall effects of the set of shocks. In each part of the counterfactual history, individuals from forward looking expectations and the authorities operate fiscal solvency rules and target monetary aggregates.