Modelling the system-wide impact of foreign direct investment (FDI) in Scotland : an ownership-disaggregated regional computable general equilibrium (CGE) analysis
The central aim of this thesis is to develop a modelling framework that is capable of analysing the system-wide impact of foreign direct investment (FDI) in Scotland. In 1996, foreign-owned plants accounted for around 40,35 and 23 per cent of Scottish manufacturing output, gross value added and employment. Moreover, the attraction of FDI remains an important part of UK regional policy in Scotland with just under half of all Regional Selective Assistance (RSA) awarded to foreign-owned firms. A key concern of this type of discretionary regional policy is whether such assistance is warranted. FDI is thought to have a range of potential demand and supply-side effects and foreign-owned manufacturing plants, in general, have quite distinct structural and behavioural characteristics, as compared with indigenous plants. Yet conventional regional system-wide evaluations of FDI typically focus on demand-side issues, using regional models that assume a passive supply-side and do not disaggregate by ownership. In this thesis I construct ownership-disaggregated Scottish Input-Output and Computable General Equilibrium Models in order to illustrate both the potential demand and supply-side impacts of FDI. The construction of the ownership disaggregated I-0 database provides a unique snapshot of the structure and interaction of foreign and UK-owned plants in Scotland. This provides detailed information as well as providing the basis for calibrating the ownership-disaggregated I-0 and CGE models. The analysis of the potential supply-side impacts of FDI, particularly labour market and 'efficiency spillover' effects, indicates that both can have a significant effect on the estimate of total FDI supported employment. Finally, I develop a simulation framework that is capable of separately identifying the importance of incorporating both 'structure' and 'behaviour' in regional models of FDI. The results indicate that incorporating the 'true' structure of foreign-owned plants is essential if one is to correctly estimate the system-wide impact of FDI.