Productivity and labour demand effects of inward and outward FDI on UK industry

Nigel Driffield, James H. Love, Karl Taylor

Research output: Preprint or Working paperWorking paper


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.
Original languageEnglish
Place of PublicationBirmignham (UK)
PublisherAston University
Number of pages45
ISBN (Print)978-1-85449-626-3, 1-85449-626-3
Publication statusPublished - Jul 2005

Publication series

NameAston Business School research papers
Publisherston University

Bibliographical note

Aston Business School Research Papers are published by the Institute to bring the results of research in progress to a wider audience and to facilitate discussion. They will normally be published in a revised form subsequently and the agreement of the authors should be obtained before referring to its contents in other published works.


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