Foreign Direct Investment: Agglomeration Economies and Returns to Promotion Expenditures
AbstractThe effect of a state's financial incentives to attract foreign direct investments (FDI) is a frequent topic for both economists and policy makers. Many studies have shown that FDI are disproportionately concentrated in states with agglomeration economies. This paper uses a conditional logit model with FDI (new plants) data from 1987-1994 to explore the relationship between state efforts, state characteristics, and FDI attraction. Key results show that both promotion expenditures and agglomeration economies are important in attracting foreign plants. Results also indicate that promotion expenditures by states with small economies can partially offset location disadvantages of agglomeration (urbanization and/or localization) economies and thus appear to be a useful economic development tool as states compete for investment.
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Bibliographic InfoArticle provided by Southern Regional Science Association in its journal Review of Regional Studies.
Volume (Year): 33 (2003)
Issue (Month): 1 ()
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FDI; Foreign Direct Investment; Policy;
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis
- R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
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