Continental Drift: European Integration and the Location of U.K. Foreign Direct Investment

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Abstract
In this paper we seek to quantify the impact of the European internal market programme on the sectoral and geographical pattern of foreign direct investment by U.K. corporations. We use an annual panel data set covering investment within seven sectors in the European Union (EU) and the United States, and control for market size, relative costs, innovation, corporate financial constraints and sector‐specific fixed effects. Our results indicate that the programme has had a significant positive effect on the level of investment, in both industrial and service sectors. There is also some evidence of investment diversion from the United States into the EU since 1990.

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