Productivity impacts and spillovers from foreign ownership in the United Kingdom

In this paper, we measure the indirect impact of FDI on the total factor productivity of domestic plants in a number of UK manufacturing industries, 1974–95, using a standard production-function-based approach. We use data from the UK ARD and information derived from UK input-output tables. Our results indicate that the competition and ‘absorption capacity’ effect at times outweighs potential benefits, leading to negative spillovers. We also find that inter-industry spillovers are generally more prevalent than intra-industry spillovers. We conclude that the nature of spillovers is such that measurement techniques traditionally adopted fail to explain adequately their complex and diverse nature.