Foreign Direct Investment in the UK: Flows, Attitudes, and Implications+

Foreign Investment, both direct and portfolio, is a much discussed subject throughout the world. There are substantial measurement problems, but the attention does not generally focus on these. Rather the attention is on its effects. In the context of developing countries, there is much discussion of whether the investment is destabilising, producing financial instability and maybe even financial crises. This is not a focus of concern in developing countries. But there is often concern there also. Fears are expressed over the dangers such investment creates for jobs, innovation, research and perhaps growth. The theme of this paper is that while such fears seem to be felt in many EU countries, they are generally absent in the UK. We document this and set out the scale of investment flows into UK, before turning to explanation of the UK attitude. Our conclusion is that the attitude is in good part a result of the UK system of corporate governance. This separates ownership and control to a much greater degree than is the case in the countries of Continental Europe, and, by separating them, makes many of the usual fears over foreign investment unnecessary, and indeed irrelevant. This, we suggest, has implications for the future pattern of investment flows in the EU.