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Spatial effects of foreign direct investment in US states

  • Eckhardt Bode
  • Peter Nunnenkamp
  • Andreas Waldkirch

This paper estimates the aggregate productivity effects of Marshallian externalities generated by foreign direct investment (FDI) in US states, controlling for Marshallian externalities and other spatial spillovers generated by domestic firms. A regional production function framework models externalities and other spatial spillovers explicitly as determinants of total factor productivity. We employ a system generalized method of moments (GMM) estimator to account for the potential endogeneity of FDI and the presence of spatial lags. Using data for US states from 1977-2003, the results indicate that FDI generates positive externalities, while externalities from domestic firms are negative.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 45 (2012)
Issue (Month): 1 (February)
Pages: 16-40

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Handle: RePEc:cje:issued:v:45:y:2012:i:1:p:16-40
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Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4

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