Review of Industrial Organization 22: 207–223, 2003.
© 2003 Kluwer Academic Publishers. Printed in the Netherlands.
Foreign Ownership and Productivity in the United
Kingdom Estimates for U.K. Manufacturing Using
and CATHERINE ROBINSON
Department of Economics & Finance, University of Durham, 23–26 Old Elvet, Durham DH1 3HY,
U.K. E-mail: firstname.lastname@example.org
National Institute of Economic and Social Research, 2 Dean Trench Street, Smith Square, London,
SW1P 3HE, U.K. E-mail: email@example.com
Abstract. There is a general assumption in much of the literature on FDI that foreign owned plants
have higher productivity. The purpose of this paper is to answer the important question: “Are foreign
owned plants better?”. Using U.K. manufacturing data over the period 1974–1995, our results provide
robust empirical support for the view that in general, they are. This is of policy relevance in that it
provides a clear rationale for support programmes aimed at attracting FDI for the direct beneﬁts that
it brings. It also highlights hindrances that may face inward investors, particularly cultural barriers.
Key words: FDI, foreign-owned, micro-based manufacturing data, productivity.
In 1997, some 30.9 per cent of manufacturing gross output (sales) was produced in
plants that were afﬁliates of foreign-owned companies; in 1974 the corresponding
ﬁgure was 13.8 per cent. Given the importance of FDI to U.K. manufacturing and
its impact on industrial structure and competition, the relative performance of for-
eign versus domestic plants is of considerable interest to industrial economists and
policy makers. The fact that the U.K. is successful in attracting a large proportion of
foreign direct investment (FDI) (vis à vis other EU countries) is often seen as being
very positive and something to which the government is committed and wishes to
expand (cf. The Competitiveness White Paper, DTI, 1998). In all, having a large
and growing FDI sub-sector in manufacturing (and other sectors of the economy)
is seen as having many advantages which currently outweigh the negative impacts
associated with foreign-ownership, for example, loss of control of vital factors of
production, capital ﬂight etc.
Support from the Leverhulme Trust (grant F/00678A) is gratefully acknowledged. We would
also like to thank the Ofﬁce for National Statistics for permission to use the Annual Business In-
quiry Respondents Database. Our thanks also are extended to our anonymous referees for insightful
comments on earlier drafts of this paper.