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The Process of European Integration and the Determinants of Entry by non–EU Multinationals in UK Manufacturing

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  • Sourafel Girma

Abstract

I seek to evaluate the influence of the European Internal Market Programme on the relative significance of the determinants of entry (via acquisitions and start–ups) by non–EU multinationals in some 102 UK manufacturing sectors. The occurrence of foreign direct investment (FDI) is modelled as a two–step process in which factors affecting whether a sector gets any entry by foreign plants are first considered, and the determinants of the count of entries for those sectors that attract positive flow of FDI are then investigated. The empirical estimates point to the conclusion that the parameters of the FDI functions have changed in response to the challenges and opportunities created by increasing economic integration, but with some interesting contrasts between the two types of entries. Acquisition FDI appears to have become more responsive to the size of the European market and unit labour costs relative to the rest of the EU, and less sensitive to the local market size. It is also increasingly being concentrated in sectors with higher intra–EU export propensity, consistent with the predominance of vertical FDI. By contrast, the significance of the size of the UK market has not diminished in the greenfield investment model, and the importance of agglomeration economies has more than doubled during the process of integration. Since the FDI consequences of European integration vary according to the mode of foreign entry, the policy implications of our findings also depend on the type of FDI under consideration.

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  • Sourafel Girma, 2002. "The Process of European Integration and the Determinants of Entry by non–EU Multinationals in UK Manufacturing," Manchester School, University of Manchester, vol. 70(3), pages 315-335, June.
    • Handle: RePEc:bla:manchs:v:70:y:2002:i:3:p:315-335
    DOI: 10.1111/1467-9957.00305
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    Cited by:

    1. Barbara M. Roberts & Abdulaziz Almahmood, 2009. "Source Country Characteristics and the Inflow of Foreign Direct Investment into Saudi Arabia," The World Economy, Wiley Blackwell, vol. 32(12), pages 1730-1746, December.
    2. Francis M. Kemegue, 2009. "Do Neighbors of Host Countries Matter to Aggregate US FDI Outflows?," Working Papers 200929, University of Pretoria, Department of Economics.
    3. Wei, Yingqi & Liu, Bo & Liu, Xiaming, 2005. "Entry modes of foreign direct investment in China: a multinomial logit approach," Journal of Business Research, Elsevier, vol. 58(11), pages 1495-1505, November.
    4. Jones, Chris & Temouri, Yama, 2016. "The determinants of tax haven FDI," Journal of World Business, Elsevier, vol. 51(2), pages 237-250.
    5. Alexander Hijzen & Holger Görg & Miriam Manchin, 2006. "Cross-border mergers and acquisitions and the role of trade costs," European Economy - Economic Papers 2008 - 2015 242, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Hijzen, Alexander & Görg, Holger & Manchin, Miriam, 2008. "Cross-border mergers and acquisitions and the role of trade costs," European Economic Review, Elsevier, vol. 52(5), pages 849-866, July.
    7. Driffield, Nigel & Jones, Chris & Crotty, Jo, 2013. "International business research and risky investments, an analysis of FDI in conflict zones," International Business Review, Elsevier, vol. 22(1), pages 140-155.
    8. Francis M. Kemegue, 2009. "Pattern of Interdependence of Aggregate FDI from the Same Source Country," Working Papers 200928, University of Pretoria, Department of Economics.

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