Inward foreign direct investment and constitutional change in Scotland

Abstract

Purpose

The purpose of this paper is to undertake an analysis of the implications of potential Scottish independence for inward foreign direct investment (FDI), multinational enterprise strategies and the local economy.

Design/methodology/approach

This paper takes a multidisciplinary approach drawing on literature and evidence in the international business and management, political economy and economic geography fields to analyse the role and impact of inward FDI in Scotland following possible Scottish independence.

Findings

Scotland continues as an attractive location for FDI, with greater diversity than hitherto. While the country’s comparative advantages in immobile natural resources provide some protection from uncertainty, weak embeddedness is a risk factor irrespective of independence. A range of transition costs of independence are identified, which could be high and of indeterminate duration, and some will be sector-specific. There are also new possibilities for tailoring of policies and potential reindustrialization opportunities in renewable technologies. The foreign investors most vulnerable to political risks and uncertainties are those whose market scope is the rest of the UK (rUK) either as exporters or value-chain integrators, in addition to the high political risk industries of energy, banking and financial services and defence. Scottish subsidiaries’ significance within their parent MNE groups will also be a major factor in determining responses to political risks and uncertainties.

Originality/value

Specific focus on the impact of potential independence on the foreign-owned sector as a major contributor to the Scottish economy.

Citation

Young, S., Ross, D. and MacKay, B. (2014), "Inward foreign direct investment and constitutional change in Scotland", Multinational Business Review, Vol. 22 No. 2, pp. 118-138. https://doi.org/10.1108/MBR-04-2014-0016