This briefing is the first in a regular series of notes tracking the changing patterns of inward investment in the UK as we emerge from Covid-19, and as our trading relations with the rest of the world become more certain. What we are seeking to do, as a collaboration between Warwick Business School and Moody’s Analytics funded by The Productivity Institute, is to explore the latest intelligence on foreign direct investment (FDI) flows into the UK, and what that means for productivity. The aim will not be to
discuss every aspect of inward investment every time, but to focus on certain details.
We start, therefore, with an assessment of the changing patterns of FDI before the Brexit referendum. We suggest that, while volumes of inward investment have varied, patterns, both distinguishing between merger and acquisition (M&A) and greenfield in terms of source country, have stayed fairly similar, with approximately two-thirds of inward FDI into the UK originating in the traditional markets of the European Union (EU27) and United States of America (USA).
However, analysis of the largest investments suggests that high proportions are linked to infrastructure, while a high proportion of acquisitions appear to be motivated by the desire of foreign firms to acquire knowledge, rather than to lever their technology or knowledge into UK markets. Both of these activities are associated with lower levels of productivity growth than other forms of FDI.
Authors Nigel Driffield, Xiaocan Yuan, Fernando Gutierrez Barragan