The economic impact of outward direct investment (ODI)
This report investigates the associations of outward direct investment (ODI), which refers to the investment of UK companies abroad, and key economic outcomes for the UK.
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This report was produced by LSE Consulting’s Trade Policy Hub and commissioned by the Department for Business and Trade (DBT).
The report first provides a literature review to understand what lessons can be learned from the existing research on UK ODI and discusses to what extent their findings may still apply in terms of earnings and repatriation, productivity, employment, and exports.
It uses datasets from the Office for National Statistics’ Secure Research Service, employing primarily regression models to analyse the relationship between ODI and various economic outcomes.
Key findings include:
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firms that invest in overseas activities contend with the costs of internationalising and are therefore, on average, larger and more productive. UK firms with ODI accounted for just over 1% of the UK total in 2018. Yet, the same firms contributed to 24.5% of UK employment and approximately 32.3% of UK gross value added
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UK ODI is associated with a productivity increase. For an average UK firm, a 10% increase in time-lagged investment position was associated with a 4.7% increase in its gross value added, taking into account various firm-level characteristics
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ODI is associated with an increase in trade. For an average UK firm, a 10% increase in ODI was associated with a 0.39% increase in their exports, in line with research from other countries. It is also indicative of a complementary relationship between UK ODI and exports