Britain is second only to the US in overseas investment.
Although British business remains reluctant to invest at home - where investment has been stagnant for the past two years - overseas spending has been stepped up. Latest figures show that foreign direct investment from the UK (ie capital expenditure overseas) rose to $30 billion (£19.5 billion) last year, an increase of one-fifth on 1993 and double the 1991 level. This preference for foreign rather than domestic opportunities has made the UK the world's second largest overseas investor in direct investment projects. Only US companies invest more, with $58 billion being allocated to foreign direct investment in 1994 (see chart).
The pattern reflects several factors. Clearly, labour costs play a role, wage rates in Asia often being only a fraction of domestic rates. However wages are by no means the only consideration driving overseas investment. Faced with a mature UK market many firms are looking to be nearer the faster growing regions of the world. This has helped to draw capital to the Pacific Rim, in particular, where annual growth rates of 5% plus can be found. Besides gaining a local presence in the market, the UK firm could expect to benefit on transport costs. Some investment is also driven by a desire to escape trade barriers. These factors are unlikely to reverse themselves in the near future. Thus, although Schroder Economics expects UK domestic capital expenditure to pick-up over the next two years, the balance of investment going abroad is likely to remain high.