Journal of Economic Geography 2:279-310 (2002)
Copyright © 2002 Oxford University Press
Article |
The wider effects of inward foreign direct investment in manufacturing on UK industry
*Organization for Economic Co-operation and Development, LEED Programme, Territorial Development Service, 2 rue André-Pascal, 75775 Paris Cedex 16, France. email 
jonathan.potter{at}oecd.org
**Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge CB3 9EP, UK. email bcm1{at}cam.ac.uk
***Public and Corporate Economic Consultants, 49–53 Regent Street, Cambridge CB2 1AB, UK. email admin{at}pacec.co.uk
Abstract
This paper examines the wider effects of inward foreign direct investment (FDI) to the UK on improving the practices and competitiveness of domestic industry. Surveyed domestic suppliers, competitors, and customers to foreign investors reported extensive positive impacts on their practices, focused particularly on reductions in X-inefficiencies, and on their competitiveness, although in the case of competitors benefits had to be balanced against adverse effects. Knowledge transfers through personal contacts and the demonstration effect, were important to the transmission of impacts, but a number of other channels were also important, including additional supplier sales, improved customer inputs, and the competitive spur. Regional policymakers should take these wider benefits into account in the design of policies for attracting and embedding foreign investment. However, whilst there was no evidence that foreign firms in assisted regions had fewer benefits than those in core regions, there was a lot of leakage outside of the areas attracting foreign firms, suggesting that policies to promote spillovers should not be developed entirely in a local or regional framework.
Keywords: FDI, innovation, technology transfer, spillovers
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