Who Benefits from Foreign Direct Investment in the UK?

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Abstract

The presumed higher productivity of foreign firms and resulting spillovers to domestic firms has led governments to offer financial incentives to foreign firms. We investigate if there is any productivity or wage gap between foreign and domestic firms in the UK and if the presence of foreign firms in a sector raises the productivity of domestic firms. Our results indicate that foreign firms do have higher productivity than domestic firms and they pay higher wages. We find no aggregate evidence of intra-industry spillovers. However, firms with low productivity relative to the sector average, in low-skill low foreign competition sectors gain less from foreign firms.

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