Research has revealed that foreign investment by UK companies is stealing jobs from the country’s most disadvantaged regions, adding firepower to public pushback against offshoring and outsourcing. 

This contrasts with the results of a separate study on the US which found that employment in lower-income areas benefits most from outward greenfield investment. The two studies have prompted calls for FDI policymaking on both sides of the Atlantic to focus more on the effects of outbound investment. 

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Despite drawing criticism for destroying employment opportunities, academic research consistently shows that outbound FDI has no impact – and sometimes even a positive impact – on national job numbers. Improved productivity and competitiveness leads firms to reinvest and create more knowledge-based jobs in their country of origin.

But the London School of Economics (LSE) and Bocconi University have found that in the UK the impact is felt very differently at a sub-national level. “Relocating operations overseas allows firms to refocus on higher value-creation activities at home. But these two things are not coinciding geographically,” says the LSE’s Simona Iammarino, who co-led the project. “What is destroyed in one region is created somewhere else with a higher value-add.”

The study found that outbound FDI leads to a decrease in routine jobs and an increase in creative, knowledge-based roles. As different parts of the UK specialise in different industries and skillsets, the areas losing jobs do not benefit from the new opportunities that emerge downstream.

Areas hit hardest are the Midlands, England’s north and north-west, Wales and peripheral parts of Scotland. The winners are England’s south-east, Aberdeen, Edinburgh, Harrogate, Manchester and Bristol.

The findings are based on job changes within Great Britain’s 229 so-called ‘travel to work’ areas – a proxy for local labour markets – and multinationals’ greenfield investment, mergers and acquisitions abroad between 1998 and 2008. 

FDI policies: a two-way street 

The findings suggest that pushback to outbound investment from parts of the UK is warranted, said Ms Iammarino, but they do not make the case against offshoring, international outsourcing or relocation. “These processes have led to job creation in creative occupations at home,” she said. “But we need to look at the impact of globalisation at the sub-national level to understand where and how to intervene.”

Industrial policies in the UK and elsewhere are often set at a national level, observes Bocconi University’s Luisa Gagliardi, who co-led the study. She said there is a strong case for more region-specific policymaking. “If governments want to address the situation that exists in many industrialised economies nowadays – this concentration of disadvantage and discontent in specific population groups and places – national policies need also to take into account globalisation’s uneven effect within countries,” she says. 

The report also calls for foreign investment policies to encompass outbound activity. “Focusing on promoting inward FDI, without looking at what goes into and out of each region, can create serious problems,” says Ms Iammarino. “Globalisation means inflows and outflows. You cannot concentrate on only one part of the story, as that gets it wrong.” 

Different results Stateside

The authors believe their conclusions are applicable to Europe, but a separate study published in April shows a different dynamic is playing out across the Atlantic. 

An analysis of the US labour market by the LSE, the University of Padova and the University of California found that, as in the UK, outbound FDI does not hurt national job numbers, and the newly-created roles require a relatively advanced skillset. 

However “less developed regions benefit the most from the positive returns of outward FDI”, the report states. While this suggests the US’s inter-regional divide is less pronounced than the UK’s, FDI creates inequalities between high-skilled and low-skilled workers living in the same areas.

“The importance of active internationalisation through outward FDI is often neglected in policy debates on both sides of the Atlantic,” says the LSE’s Riccardo Crescenzi, who co-led the research. “Our US study uncovers new opportunities to be leveraged by local development policies, calling for a wider mission for Investment Promotion Agencies in both advanced and less developed regions.”

The US study is based solely on greenfield investment abroad, so the results are not directly comparable.