The EU has been of no lasting benefit to foreign investment in the UK
- No evidence the Single Market has boosted FDI for its members, including Britain
- Higher rates of foreign investment growth in many non-EU economies since 1993
- Boost from entry to the Common Market lasted no more than a decade
The UK has attracted no more foreign direct investment (FDI) as a member of the European Single Market than it would have done outside the EU, a new study by the cross-party think tank Civitas shows today.
In a close analysis of investment figures from the past 40 years, Michael Burrage finds no evidence that the Single Market has been a magnet for FDI.
The UK’s per capita FDI stock has grown at a comparatively mediocre rate since the Single Market was founded in 1993. That of non-members in Europe has increased much more quickly.
Supporters of Britain’s membership of the EU have frequently claimed it encourages investment in the UK. But Burrage says leading politicians have too often relied on hearsay, intuition and inference rather than research based on evidence.
“There is no evidence to suggest that the Single Market as a whole has been a magnet to foreign investors, or that it has encouraged FDI in the UK specifically. Many non-members have attracted more FDI,” he writes in ‘The EU Effect’.
Using figures from the Organisation for Economic Cooperation and Development (OECD) and United Nations Conference on Trade and Development (UNCTAD), he finds that entry to the Common Market in 1973 did have a beneficial effect on FDI in the UK, but there is no evidence that it lasted for more than a decade.
Burrage has held academic positions at the London School of Economics and Harvard, has conducted research for Ernst & Young and NTT and is now a director of Cimigo, which conducts market and corporate strategy research in China, India and throughout South-East Asia.
His analysis of FDI flows and stocks since 1970, the year UNCTAD began to publish comprehensive data, is the first long-term study of its kind.
In it, he details how since the Single Market was established:
- FDI inflows per capita to independent European countries Norway, Iceland and Switzerland have been nearly double those to the 11 founding members of the Single Market.
- Over the first 19 years of the Single Market, 1993-2011, its founder members (excluding Luxembourg) received $15,500 (£9,300) per inhabitant while Norway, Iceland and Switzerland received $28,000 (£16,700) per inhabitant.
- The total FDI stock of Norway, Iceland and Switzerland has grown by four times as much as that of Single Market countries. Relative to independent countries, members of the Single Market have become less attractive to foreign investors.
- The growth in FDI per capita among founder members of the Single Market has been highest in Denmark, Belgium and the Netherlands; the UK has been below the EU mean. There has been no convergence in the appeal of Single Market members to foreign investors since it was set up.
Burrage also finds that the European single currency, contrary to its early supporters’ claims, has not been a significant factor in FDI flows in Europe, either for those who joined the euro or for those – including the UK – who did not.
He writes: “The rate of growth of the UK’s FDI stock over the years 1993-2011 has been comparatively mediocre, slightly below the mean of other founder members. In the meantime, FDI in many independent countries, both in Europe and beyond, has grown at faster – often far faster – rates.
“The case for UK membership of the EU, of the euro, and of the Single Market, has rested to a considerable extent on claims about their benefits for FDI in the UK, and warnings about the consequences of losing them,” Burrage writes.
“Much the most credible of these claims is that entry to the Common Market in 1973 boosted FDI in the UK, since the same positive effect can be observed in most other new entrants, whatever date they might have joined.
“However, the claim that membership of the EU as such has been of lasting benefit to FDI in the UK is not credible, and difficult to reconcile with the higher rates of growth in FDI flows and stocks found in many non-member countries in Europe and beyond.”
The EU Effect: The impact of the EU on foreign direct investment in the UK from 1970 to 2011