The Direct Contribution of FDI to Productivity Growth in Britain, 1997–2008


  • This work contains statistical data from Office for National Statistics (ONS) which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen's Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research data sets which may not exactly reproduce National Statistics aggregates. We also would like to thank UK Trade & Investment (UKTI), who supported this research.


This paper considers the contribution of foreign-owned plants and firms to aggregate total factor productivity (TFP) growth in Britain for 1997–2008 using data from the Annual Respondents' Database. The contribution of different sub-groups is further decomposed to show the role of continuing plants vis-à-vis reallocations in output shares. TFP is calculated using system GMM estimation. Taking into account the smaller initial size of the foreign-owned sector in 1997, foreign-owned plants contributed relatively more to aggregate productivity growth than UK-owned plants over the period. This strong performance is mostly the result of reallocations of output shares towards high productivity continuing plants and the opening of high productivity plants.