This report by LSE’s Trade Policy Hub, commissioned by the Department for Business and Trade (DBT), investigates the economic associations of Outward Direct Investment (ODI) for the UK. This report is uniquely specific to the UK economy for the period from 2013 to 2019, exploring associations between ODI and key economic outcomes: earnings, productivity, employment, and exports. The report utilises datasets from ONS’ Secure Research Service, employing primarily regression models to analyse the relationship between ODI and various economic outcomes. Given that only 1% of all UK firms have ODI positions abroad (which account for 24% of all UK employment and 32% of gross value added (GVA)), there is evidence of a disproportionate contribution of ODI from just a few very large companies.
In the current global context, policymaking in macroeconomics and trade policy operates from assumptions that are in many ways antithetical to past knowledge about the benefits of ODI for the investing economy. The UK is amongst the top foreign investing countries in the world. Given this significant volume of investment, it becomes urgent to gain a deeper understanding of the relationship between ODI and the UK economy.
This report presents some important findings on the associations between ODI and key economic outcomes of public interest (including earnings, productivity, employment, and exports), specifically for the UK in recent years. The research also aids in identifying the best types of ODI to support in order to boost exports, in line with DBT’s Export Strategy published in November 2021. The research further adds to the ODI evidence base, such as tackling market access barriers in specific sectors, analysing global regions and types of economies and understanding the interplay between ODI and UK exports.