The UK also has an excellent outward FDI record, investing US$39 billion abroad in 2001. The UK stock of outward investment was over US$940 billion in 2001; around 14 per cent of global investment stocks and more than a quarter of the total EU outward investment stock.The recent global downturn in FDI, which saw world investment flows falling by 50 per cent in 2001, has inevitably affected the UK The UK share of EU flows has fallen since the start of EMU. The UK’s share fell from 28 per cent in 1998 to an average of 16 per cent over 1999 to 2001, followed by a sharp decline to 6 per cent in 2002. In France, the share fell from an average of 19 per cent between 1990 and 1996 to 5 per cent in 2000 but has since risen and was 13 per cent in 2002. Apart from the strong rise in 2000, reflecting one-off factors, the German share has been more stable at around 10 per cent since 1997.

Over and above the general volatility in flows data, recent years have been characterised by particular factors, for example the UK’s substantial negative FDI flow in the first quarter of 2002 and strong performance by Belgium and Luxembourg bringing their share of EU inward investment flows to 38 per cent in 2002.Disaggregated data, showing FDI inflows from within the EU and FDI inflows from outside the EU, are not yet available for 2002. The latest data on FDI split by source show that the UK’s share of investment from within the EU remained broadly constant between 1995 and 2001 and kept pace with that of France and Germany.The UK is a major recipient of investment from non-EU countries, its share peaking at almost 50 per cent of total outside flows into the EU in 1998, having increased sharply since 1995. While this share has since been eroded, the bulk of the decline was concentrated in 1999, and from then to 2001 the share appears to have stabilised at around 25 per cent.Some surveys suggest that euro area investors do not view UK entry as an important factor in FDI decisions. In a survey by the German-British Chamber of Commerce in January 2003, nearly 80 per cent of German investors into the UK reported that the UK remaining outside EMU would have no impact on their investment decisions. On the other hand, a survey by AT Kearney in 2001 reported that over half of European executives questioned would be dissuaded from investing in the UK by a decision not to join EMU.Over time, EMU is likely to boost FDI in the euro area. The removal of currency transaction costs and risk through EMU entry would increase access to this capital market for UK firms, although differences in regulation and infrastructure would remain important barriers to access.Progress made on lowering these barriers, for example through the FSAP, will be to the benefit of UK investors whether or not the UK joins the single currency.The barrier to access to the EMU capital market created by currency transaction costs and risk is relatively more important for SMEs than for large firms.

With the Treasury estimating GDP will be £1,100bn this year – or £18,333 per person – joining the euro could boost GDP by £1,696 per person.The figures were seized upon by pro-euro groups. Philippe Legrain, chief economist of Britain in Europe, said: “It’s official: the euro will make us richer. We cannot afford to pass up such a golden opportunity.”The paper’s language was more measured. “In principle, participation in EMU would boost UK (or any other country’s) trade with the euro area, raising efficiency and productivity overall,” it said. The main mechanisms underpinning these benefits were: reduced exchange rate uncertainty, lower transaction costs and enhanced competition through greater price transparency. A big reason for the scale of the benefits is that the euro area is the UK’s dominant trading partner.