The trade effects of Japanese manufacturing investment in the UK economy

There is widespread debate about the nature and scale of the benefits which accrue from inward direct investment by Japanese manufacturing companies in the UK. Proponents emphasize the additional output, employment and exports which such investment brings to the UK economy. In contrast, critics (particularly of Japanese investment) belittle the local content of mere ‘screwdriver’ assembly plants and maintain that the UK value added is but a small proportion of the output of the foreign affiliates. This paper provides estimates of the impact of Japanese manufacturing investment on UK output, employment and the trade balance in 17 industrial sectors. The main conclusion is that Japanese direct investment has had a disproportionate impact across industrial sectors but that the overall effect has been beneficial.