Foreign Direct Investment, Technological Change, and Economic Growth Within Europe

Abstract

The extent of multinational activity and the share of world trade accounted for by multinational enterprises has risen steadily over the past two decades. This has led to renewed interest within Europe in the impact of multinational enterprises on employment, investment and trade, and the structure of economic growth. In this paper we discuss the factors behind the continued growth of foreign direct investment and its wider consequences on home and host economies. We report evidence on the impact of production relocation on the export performance of a number of OECD economies, and investigate the extent to which technology transfer from foreign-owned firms has affected the rate of technical progress within the German and UK economies. The acquistion of firm-specific knowledge-based assets is found to be an important factor behind the growth of FDI, suggesting that such investments are likely to be an important channel for the diffusion of ideas and technologies.

Catching-up of East German Labour Productivity in the 1990s

“…4 If the sources of technical progress are all exogenous then it is only possible to identify two of these, which can be described as neutral technical progress and the factor bias. However, as Barrell and Pain (1999) show, endogenous technical progress changes this. The CES production function, with constant returns to scale, can be written as follows:…”

“…We have identified techn for neutral technical progress, techk for capital-augmenting technical progress and techl for labour-augmenting technical progress. Barrell and Pain (1999) estimate a production function for West Germany up to 1994 using the marginal productivity conditions for labour and for capital, and they estimate these relationships simultaneously. They find that labour-augmenting technical progress (improvements in education, perhaps) is exogenous and that the stock of foreign investment in West Germany (17 per cent of manufacturing employees in West Germany in 1990 were in foreign-owned plants) was a source of neutral technical progress.…”

“…It is straightforward to derive labour demand as a function of real wages, technical progress and output (see Barrell and Pain, 1997). The mark-up adjusted real wage M Ã wap can be set equal to the marginal product of labour derived from the production function, and it can then be rearranged to give a labour demand curve conditioned on output, the real wage and technical progress.…”

The Determinants of Foreign Direct Investment in the CEECs: New evidence from sectoral patterns

“…First of all, FDI is industry and not country specific (Buigues and Jacquemin, 1994). Secondly, a sectoral approach allows us to focus on the industrial specialization of both home and host countries, permitting better understanding of the long-run determinants of FDI (Barrell and Pain, 1997). Thirdly, in transition economies, the concentration of FDI in particular sectors may affect the path and pace of the restructuring process, reshaping the industrial specialization of the host countries.…”

Decomposing Growth in France, Germany and The United Kingdom Using Growth Accounting and Production Function Approaches

“…Rather than focussing on the investment/capital side of the relationship, we jointly estimate the labour and investment demand equations. This allows us to improve the precision of the estimate of the price elasticities of factor demands, imposing cross equation restrictions on the key production function parameter p , and hence allowing us to draw stronger conclusions about the elasticity of substitution than either Barrell and Pain (1997) or Ellis and Price (2004).…”