I seek to evaluate the influence of the European Internal Market Programme on the relative significance of the determinants of entry (via acquisitions and start-ups) by non-EU multinationals in some 102 UK manufacturing sectors. The occurrence of foreign direct investment (FDI) is modelled as a two-step process in which factors affecting whether a sector gets any entry by foreign plants are first considered, and the determinants of the count of entries for those sectors that attract positive flow of FDI are then investigated. The empirical estimates point to the conclusion that the parameters of the FDI functions have changed in response to the challenges and opportunities created by increasing economic integration, but with some interesting contrasts between the two types of entries. Acquisition FDI appears to have become more responsive to the size of the European market and unit labour costs relative to the rest of the EU, and less sensitive to the local market size. It is also increasingly being concentrated in sectors with higher intra-EU export propensity, consistent with the predominance of vertical FDI. By contrast, the significance of the size of the UK market has not diminished in the greenfield investment model, and the importance of agglomeration economies has more than doubled during the process of integration. Since the FDI consequences of European integration vary according to the mode of foreign entry, the policy implications of our findings also depend on the type of FDI under consideration.

https://papers.ssrn.com/sol3/Delivery.cfm/manc305.pdf?abstractid=320682&mirid=1

The Process of European Integration and the Determinants of Entry by non-EU Multinationals in UK Manufacturing

This paper aims to develop a theoretical model that shows how a firm's decision to make a foreign direct investment is influenced by a North-South regional economic integration. Our results suggest that tariff-jumping and export-platform strategies depend on a tradeoff between variable trade costs and fixed costs, in addition to wage differences. Furthermore, insiders may affect the strategic location of outsiders by dampening the market accessibility advantages induced by the trade liberalization process, which results in an eviction of the outsiders from the area. This effect, however, depends heavily on the level of fixed costs. Indeed, a decrease in the costs of implanting in the low-wage country gives the insiders a first-mover advantage that allows them to later evict their competitors.

Does North-South Integration Affect Multinational Firms' Strategies?

This paper aims to develop a theoretical model that shows how a firm's decision to make a foreign direct investment is influenced by a North–South regional economic integration. Our results suggest that tariff-jumping and export-platform strategies depend on a tradeoff between variable trade costs and fixed costs, in addition to wage differences. Furthermore, insiders may affect the strategic location of outsiders by dampening the market accessibility advantages induced by the trade liberalization process, which results in an eviction of the outsiders from the area. This effect, however, depends heavily on the level of fixed costs. Indeed, a decrease in the costs of implanting in the low-wage country gives the insiders a first-mover advantage that allows them to later evict their competitors.

Does North–South Integration Affect Multinational Firms’ Strategies?

This paper attempts to compare the characteristics of South-South FDI versus North-South FDI in the context of India. The analysis is carried at two levels. First t the overall trends of FDI flows (both inward & outward) is looked at region wise (North versus South), country wise and sector wise. Econometric analysis at the sectoral /industry level for inward FDI from the North and from the South to examine the difference in the characters (if any) of FDI from the two sources was carried out. [WP no. 238].

https://www.econstor.eu/bitstream/10419/176256/1/icrier-wp-238.pdf

South-South FDI vs North-South FDI: A Comparative Analysis in the Context of India

This paper explores whether and how environmental dynamics can affect foreign and domestic survival. Utilizing a unique longitudinal data set with 420 manufacturing plants created in the protected developing Greek economy (1960–1980), we test these plants’ ability to survive in the new, integrated environment (1981–2001), when Greece became a member of the European Union (EU). After controlling for time and age effects, we find that environmental dynamics in terms of integration and economic development negatively influence the survival of all tariff-jumping and unskilled labor-intensive plants, regardless of their ownership. However, survival evolution of foreign-owned and domestic plants differs over time depending on the country’s degree of economic integration. Specifically, during the shallow integration period (1981–1990), foreign-controlled plants tend to retain a survival premium, which they appear to have acquired in the protectionism era. This means that foreign-owned plants benefited mo...

Foreign versus Domestic Survival in a Changing Environment

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. Outline

/pdf/the-impact-of-european-integration-on-fdi-the-uk-food-40glgjtzbj.pdf

Katharine Wakelin

Papers

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