The Role of Investment Incentives in Regional FDI Reallocation: A Regression-Discontinuity Approach
AbstractThis paper analyzes the causal effect of investment incentives on regional allocation of foreign direct investment (FDI) in the Czech Republic during 2001-2007. Investment incentives institutional setup provided foreign investors with financial incentives depending on the particular district unemployment rate. The identification strategy is based on a regression-discontinuity approach as the scheme design introduces three unemployment thresholds differentiating the amount of the subsidy. The results indicate a positive effect of the investment scheme, but this impact is concentrated only at the lowest available unemployment threshold, increasing annual FDI inflow per capita by 330 euros compared to districts ineligible for the subsidy. However, an impact at higher unemployment thresholds is not found. Attracting FDI into the most distressed regions needs to be complemented with other policy tools and remains to be an important challenge for policymakers. Among other FDI location factors, the share of tertiary educated labor force and wages have significant positive impact on FDI, albeit only during 2001-2004, increasing annual FDI inflow per capita by 25 and 12 euros, respectively.
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foreign direct investment; government expenditures; public incentives; regional development;
Find related papers by JEL classification:
- H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
- J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
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