PRODUCTIVITY AND LABOUR DEMAND EFFECTS OF INWARD AND OUTWARD FOREIGN DIRECT INVESTMENT ON UK INDUSTRY*

Abstract

We relate the technological and factor price determinants of inward and outward foreign direct investment (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 that is linked to labour cost differentials. We then empirically examine the effects of different types of FDI into and out of the UK on domestic (i.e. UK) productivity and on the demand for skilled and unskilled labour at the industry level.

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