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Foreign disinvestment is a concern for local economies and workforces. The closure of foreign-owned operations in a local area is frequently associated with long-term unemployment and other negative effects that can impact on those working in supply chains and the wider local economy. However, despite these concerns, studies of the causes and effects of foreign disinvestment are limited compared to those of new foreign investment.

This project aims to understand the causes of disinvestment and its short- and long-term effects on the UK economy, and to investigate what factors in a local economy can mitigate such shocks. This analysis will improve the UK Government’s understanding of the impacts different forms of disinvestment have on the UK economy, while also determining whether there is justification for government intervention to reduce closures or mitigate their consequences, through policies targeted at affected firms, industries and regions.

Methodology

Phase 1 of this project will involve several tasks carried out in parallel by the project team:

1. Systematic review of the literature on the types, causes and effects of foreign disinvestment.
2. Illustrative case studies of the various types of foreign disinvestments
3. Review of the methods currently adopted to estimate the causes and effects of disinvestment
4. Specification of the model and identification of the data sources necessary to carry out the econometric analysis in phase 2 of this project.

Phase 2 of the project will involve two econometric studies that will analyse the causes and effects of disinvestment. The project team will also develop a framework to assess the risk of disinvestment in different UK regions and industries.

Impact & Outreach

This research will provide qualitative insights into different forms of disinvestment, the events or conditions preceding the disinvestment, how the disinvestment was undertaken, and its effects on the displaced workforce, industry, and economy.

The project will produce an interim report and a final report, which will feed into Government understanding of, and policy-making decisions surrounding, the causes and effects of foreign disinvestment.

Further Information

Dr Palitha Konara, Senior Lecturer in International Business, is the director of this project. The project team includes:

• L. Alan Winters, Professor of Economics
• Roger Strange, Professor of International Business
• Mattia Di Ubaldo, Research Fellow in the Economics of European Trade Policies
• Nicolo Tamberi, Research Officer at the UK Trade Policy Observatory
• Sambit Bhattacharyya, Reader in Economics

This research is funded by the Department for International Trade.

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