Does the EUís Single Market Encourage FDI into the UK?
This paper examines the claim that the single market has helped
investment, and specifically the foreign direct investment (FDI) into the UK,
which has in recent years contributed somewhere between a fifth and a half of
the total gross UK capital formation. Membership of the EUís single market is
commonly assumed to have been a key factor in encouraging foreign investors to
choose to invest in the UK.
The main finding is that
the annual flows of FDI into non-members of
the EU in Europe, and selected non-members beyond, have not declined or
in any respect because they are not members of the EU. On the contrary, they
increased at a significantly faster rate than those of members of the EU, and
disparity is especially marked among the European non-members.
Overall the evidence suggests that the importance of the EU and the single
market as a determinant of FDI have been exaggerated by its enthusiasts. The
experience of eight independent countries over 21 years is compelling and
convincing, and it allows us to reasonably and safely assess that there is no
risk that FDI into the UK would be jeopardized, threatened or reduced if
Britain were to put itself in the same Ďisolatedí position as the eight
independent countries studied in this report.
The facts also suggest that, rather than a risk assessment of withdrawal from
the EU, it would
now be more appropriate and timely to conduct a risk assessment of remaining
the EU, and of the chances of the UK declining towards the EU norm.
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