ABSTRACT

Introduction Increasing attention has been paid in recent years to the impact of cross-border investments by multinational firms. This reflects both the rapid growth in the importance of foreign-owned firms in many economies, particularly within Europe, along with recent improvements in the quality and availability of data on foreign direct investment. At the heart of the debate is a focus on the costs and benefits of foreign investment, such as whether inward investments affect employment and economic growth and whether outward investment is simply ‘job exporting’, with firms moving to low-cost, labour-abundant locations. An understanding of the motives and consequences of firms’ decisions to invest abroad is of particular importance for the UK, whose aggregate stocks of outward and inward foreign direct investment reached 30 per cent and 21 per cent of GDP respectively at the end of 1995. In this chapter we investigate the factors affecting the growth of multinational firms and foreign direct investment, the national characteristics that affect the pattern of inward investment within European countries and the implications of foreign-owned firms for the economic performance of host economies.