The relative economic performance of foreign subsidiaries in UK manufacturing

This paper compares the economic performance of UK and foreign-owned firms in UK manufacturing industry. A panel data set covering 14 233 firms for the period 1992-1996 is used and the influences of firm-, industry- and country-specific advantages on productivity are examined. The results of the study show that labour productivity is higher in foreign subsidiaries than in UK firms and that foreign subsidiaries as a whole employ higher levels of human capital and enjoy greater economies of scale. A further source of productivity advantage for US subsidiaries is their higher level of intangible assets, and for European and Japanese subsidiaries their higher level of capital intensity. The results have policy implications for the targeting of promotion activities to attract FDI.