With a review underway into the Government’s approach to attracting foreign direct investment (FDI), a strong evidence base has never been more important.  

Over the last two months, NCUB has been working with OCO Global to develop a model that demonstrates the performance of the UK’s nations and regions in the factors that attract FDI into research and development (R&D) 

These factors, identified through a review of the literature and discussions with the project advisory group, include: 

  • Human capital: including number of researchers engaged in R&D 
  • R&D environment: including presence of R&D institutions and universities, research expertise in relevant sectors and effective cross-pollination of academic and commercial research 
  • Innovation: including competition between firms, as well as the presence of start-ups, technology transfer organisations and other bodies as important signals of innovative thinking 
  • Investment opportunities and markets: including access and proximity to markets and funding solutions for different stages of corporate development 
  • Established value chains: including presence of other R&D intensive companies, 
  • R&D infrastructure: such as access to specialist machinery and equipment, transportation networks, and other critical infrastructure 
  • Government support: through public funding 
  • Familiarity: including softer factors, such as relationships, approachable partners, familiarity with a location or institution and language 
  • Growth trend: including in private R&D funding 

Producing an FDI benchmark for the nations and regions

Any standard set for the nations and regions must be robust and informed by quantitative data. It is important to use those metrics that meaningfully relate to the factors described above and are available at the appropriate level of granularity over comparable time periods. For example, a challenge in our research was deciding at what level of geography to segment the UK. We have heard that companies invest in places – cities, clusters, regions – rather than countries but, broadly, the smaller the geography, the less data is available; this makes it difficult to provide comparison across similar geographic units in the UK and internationally. 

Consequently, the geographic unit of analysis that we have selected is International Territorial Level 1 (equivalent to NUTS 1), which includes Northern Ireland, Scotland, Wales and nine regions in England. This facilitates data collection and international comparability but there is an added complication. While one could live and commute to work anywhere in London within a day, the same is not true for many of the other regions and so they are unlikely to constitute a distinct ‘place’ in the mind of a potential investor (i.e. a company might choose to invest in Glasgow, or the Scottish Central Belt, rather than Scotland).  

However, an important part of this work is revealing the complexities and challenges in this type of regional assessment. Working with OCO Global and our expert Advisory Group, we are exploring different approaches and analytical lenses to address this. 

How to augment the analysis

Our approach will complement the regional data model with additional localised data on FDI flows. This means we’re testing the model of factors against real investments to identify and illustrate where, within regions, investments are made and so move beyond monolithic descriptions.  

Through this work we have discovered the impact of relationships between countries and regions upon investment decisions. However, this type of information cannot be easily captured by quantitative analysis. For example, the number of memoranda of understanding, is probably not particularly meaningful or useful.  

However, alongside the evidence report, due this summer, NCUB will create a complementary qualitative piece, to understand the other factors that affect decision making.  

We’re also keen to bring together the research and innovation community to test the findings and identify how they may be useful to businesses, policymakers and universities and what the useful next step for this work will be.  

For further information about this work, or to get involved, please contact our policy team.