Industrial Performance, Agglomeration, and Foreign Manufacturing Investment in the UK
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In
and
Performance,
Foreign
Agglomeration,
Manufacturing Investment in
the
UK
Nigel Driffield* UNIVERSITY OF BIRMINGHAM
Max Munday** CARDIFF UNIVERSITY
This paper examines the relationship between the comparative advantage of UKindustries, and new inward investment into these industries. The paper demonstrates that the extent of foreign manufacturing investment in an industry, and the spatial agglomeration of that industry, are significant determinants of industry comparative advantage, thus providing evidence of agglomINTRODUCTION The UK continues to attract relatively high levels of new foreign manufacturing investment entering the European Union. In 1996, the UK attracted 7.5 billion ECU of inward investment, which was 10.6% of total flows into the EU during that year (EC, 1998). In 1995, 2,400 foreign owned manufacturing enterprises in the UK employed 718,000 people, which represented 17% of UK
eration benefits to both domestic and foreign firms. The paper then shows that industry comparative advantage itself, together with a series of industry specific characteristics, are important determinants of new foreign manufacturing investment, thus providing evidence of the dynamic benefits of foreign direct investment in the UKeconomy.
manufacturing employment. Figure 1 demonstrates employment trends in foreign manufacturing in the UK between 1979 and 1994. The sharp fall in employment between 1979 and 1986 mirrored
those reductions occurring in domestic manufacturing as a result of the early 1980s recession. The later recovery in foreign sector employment reflected two factors. First, a strong boom in inward investment into the UK, featuring relatively high levels of new greenfield in-
*Nigel Driffield is Senior Lecturer in economics at Birmingham Business School. His main research interests concern the impacts of foreign direct investment on host country markets. **Max Munday is Senior Lecturer in business economics at Cardiff Business School. His research interests focus on impacts of foreign direct investment in UK regions. The authors are grateful to Professor Mark Casson for comments and to four anonymous referees for their helpful guidance. JOURNAL OF INTERNATIONALBUSINESS STUDIES,
31, 1
(FIRST QUARTER
2000): 21-37
21
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INDUSTRIALPERFORMANCEAND FOREIGNMANUFACTURING
FIGURE1 EMPLOYMENT IN FOREIGNOWNEDMANUFACTURINGENTERPRISESIN THEUK 1100-. 1000 900 Employment 800 in Foreign 700 Manufacturing (Os) 600 500 400 300 79
i 80
1 81
I 82
I 83
I 84
-I 85
I ---I 86 87
-I -- --I - --- I - ----I --- I 88 89 90 91 92
I 93
--94
Note: Figuresfor1980, 1982 and 1993 are estimated.
Source:UKCensusofProduction.
vestment from Japan and the European Union, and, second, increasing acquisitions in UK industry by firms of Western European and North American origin. Four industrial sectors, food products, chemicals, motor vehicles and machinery, acc
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