GEP Research Paper 99/10

The Impact of European Integration on FDI: the UK Food Industry in the 1990s

Wyn Morgan and Katharine Wakelin

This paper was subsequently published in 7 ^th International Conference on Multinational Firms conference volume, R. Lipsey and J. L. Mucchielli (eds.), Harwood Academic Publishers (2000)

Abstract

The main objective of this study is to assess the impact of European integration on foreign direct investment (FDI). It focuses in particular on inward investment in the UK food industry over the last ten years from other EU Member States and from the rest of the world. FDI in the food industry, defined both in terms of total real assets and employment in foreign-owned firms, has increased considerably from other EU countries whilst stagnating from non-EU sources. An empirical model for the determinants of FDI is tested on 48 5-digit sectors in the food industry. We find price convergence in the EU to be an important factor in influencing FDI from both within and outside the EU. In addition, FDI from the rest of the EU appears to be determined by the level of firm-specific assets and skills in the sector and to be relatively cost-insensitive; it also takes place in sectors with a low propensity to export. Non-EU FDI is influenced by comparative advantage factors such as low costs and capital intensity, and by the effective tariff rate.

Issued in July 1999.

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