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Productivity and Labour Demand Effects of Inward and Outward FDI on UK Industry

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Author Info
Nigel Driffield
James Love
Karl Taylor () (Department of Economics, The University of Sheffield)

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Abstract

We relate the technological and factor price determinants of inward and outward FDI to its potential productivity and labour market effects on both host and home economies. This allows us to distinguish clearly between technology sourcing and technology exploiting FDI, and to identify FDI which is linked to labour cost differentials. We then empirically examine the effects of different types of FDI into and out of the United Kingdom on domestic (i.e. UK) productivity and on the demand for skilled and unskilled labour at the industry level. Inward investment into the UK comes overwhelmingly from sectors and countries which have a technological advantage over the corresponding UK sector. Outward FDI shows a quite different pattern, dominated by investment into foreign sectors which have lower unit labour costs than the UK. We find that different types of FDI have markedly different productivity and labour demand effects, which may in part explain the lack of consensus in the empirical literature on the effects of FDI. Our results also highlight the difficulty for policy makers of simultaneously improving employment and domestic productivity through FDI.

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File URL: http://www.shef.ac.uk/content/1/c6/08/09/19/SERP2008001.pdf
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Publisher Info
Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 20080001.

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Length: 46 pages
Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:shf:wpaper:2008001

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Related research
Keywords: Foreign Direct Investment;

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Blackwell Publishing, vol. 12(3), pages 247-77, July. [Downloadable!] (restricted)
    Other versions:
  2. Driffield, Nigel, 2001. "The Impact of Domestic Productivity of Inward Investment in the UK," Manchester School, University of Manchester, vol. 69(1), pages 103-19, January. [Downloadable!] (restricted)
  3. Nigel Driffield & James H. Love, 2006. "Does The Motivation for Foreign Direct Investment Affect Productivity Spillovers to the Domestic Sector?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(1), pages 3-27.
  4. Brian J. Aitken & Ann E. Harrison, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June. [Downloadable!] (restricted)
  5. Nigel Driffield & James H. Love, 2003. "Foreign Direct Investment, Technology Sourcing and Reverse Spillovers," Manchester School, University of Manchester, vol. 71(6), pages 659-672, December. [Downloadable!] (restricted)
  6. Eli Berman & John Bound & Stephen Machin, 1998. "Implications Of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1245-1279, November. [Downloadable!] (restricted)
    Other versions:
  7. Jürgen Bitzer & Holger Görg, 2005. "The impact of FDI on industry performance," International Trade 0505003, EconWPA. [Downloadable!]
  8. Barrell, Ray & Pain, Nigel, 1996. "An Econometric Analysis of U.S. Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 200-207, May. [Downloadable!] (restricted)
  9. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 97-110, September. [Downloadable!] (restricted)
  10. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April. [Downloadable!] (restricted)
  11. Driffield, Nigel & Taylor, Karl, 2000. "FDI and the Labour Market: A Review of the Evidence and Policy Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 16(3), pages 90-103, Autumn.
  12. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November. [Downloadable!] (restricted)
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