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Measuring Regional Spillovers in Long- and Short-Run Models of Total Factor Productivity, Trade, and FDI

Author

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  • Timo Mitze

    () (Rheinisch-Westfðlisches Institut für Wirtschaftsforschung (RWI), Essen, Germany)

Abstract

This article applies the novel concept of global panel cointegration to analyze the role played by trade and foreign direct investment (FDI) activity in driving regional total factor productivity (TFP). Using West German state-level data for the period 1976–2008, the approach allows us to identify the magnitude of direct trade and FDI effects as well as spatial spillovers from these variables. The author finds that the inclusion of spatial lags significantly improves the fit of the empirical model and allows us to strongly reject the null of no cointegration among the variables in the full spatial specification. For the long-run cointegration equation, the empirical results hint at export- and FDI-led growth. Additionally, outward FDI activity shows to have positive spatial spillover effects among German regions, while the spatial patterns of import and inward FDI activity indicate substitution effects of interregional input–output linkages in favor of international ones over the sample period 1976–2008. In the short run, TFP growth is predominantly affected by changes in exports, inward and outward FDI stocks, where the latter variable also provokes positive spillovers. The author uses alternative spatial weighting matrices based on geographical information as well as interregional goods transport flows to check the robustness of the obtained spillover effects in the long and short run. Here, the results turn out to be similar for the different empirical specifications employed throughout the analysis. Finally, summing over the four variables to get a direct and indirect net effect of internationalization activity, the author finds that the direct effect is always positive, while the indirect net effect is positive in the short run but slightly negative in the long-run equation.

Suggested Citation

  • Timo Mitze, 2014. "Measuring Regional Spillovers in Long- and Short-Run Models of Total Factor Productivity, Trade, and FDI," International Regional Science Review, , vol. 37(3), pages 365-388, July.
  • Handle: RePEc:sae:inrsre:v:37:y:2014:i:3:p:365-388
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    References listed on IDEAS

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    1. Nicolas DEBARSY (CERPE De Namur) & Cem ERTUR & James P. LeSAGE, 2010. "Interpreting Dynamic Space-Time Panel Data Models," LEO Working Papers / DR LEO 800, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    3. Oleksandr Shepotylo, 2010. "Spatial complementarity of FDI: example of transition countries," Discussion Papers 29, Kyiv School of Economics.
    4. Behrens, Kristian & Gaigne, Carl & Ottaviano, Gianmarco I.P. & Thisse, Jacques-Francois, 2007. "Countries, regions and trade: On the welfare impacts of economic integration," European Economic Review, Elsevier, vol. 51(5), pages 1277-1301, July.
    5. Eckhardt Bode & Peter Nunnenkamp & Andreas Waldkirch, 2012. "Spatial effects of foreign direct investment in US states," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 16-40, February.
    6. Michael Beenstock & Daniel Felsenstein, 2010. "Spatial error correction and cointegration in nonstationary panel data: regional house prices in Israel," Journal of Geographical Systems, Springer, vol. 12(2), pages 189-206, June.
    7. Monfort, Philippe & Nicolini, Rosella, 2000. "Regional Convergence and International Integration," Journal of Urban Economics, Elsevier, vol. 48(2), pages 286-306, September.
    8. Hans-Friedrich Eckey & Reinhold Kosfeld & Matthias Türck, 2007. "Regionale Entwicklung mit und ohne räumliche Spillover-Effekte," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 27(1), pages 23-42, February.
    9. Ozturk, I., 2007. "Foreign Direct Investment – Growht Nexus: A Review of The Recent Literature," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(2), pages 79-98.
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