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The Role of Local Agglomeration Economies and Regional Characteristics in Attracting FDI: Italian Evidence

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  • Rosa Bernardini Papalia
  • Silvia Bertarelli

Abstract

The objective of this paper is to test for the importance of local agglomeration externalities in determining inward foreign direct investment (FDI) intensity, viewed as a measure of regional attractiveness to FDI. The links between the degree of FDI inflow penetration into Italy and its determinants at the regional level are examined using alternative fixed effects panel data model specifications, also extended to include spatial effects. It is found that sectoral and regional specificities are relevant in attracting inward FDI into Italy and the different effects of intra-sector and inter-sector spillovers can be distinguished. There is also evidence that the importance of agglomeration spillovers connected to the geographical distance varies across regions, indicating both substitution and complementarity effects from FDI inflows into neighboring regions.

Suggested Citation

  • Rosa Bernardini Papalia & Silvia Bertarelli, 2009. "The Role of Local Agglomeration Economies and Regional Characteristics in Attracting FDI: Italian Evidence," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(2), pages 161-188.
  • Handle: RePEc:taf:ijecbs:v:16:y:2009:i:2:p:161-188
    DOI: 10.1080/13571510902917442
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    References listed on IDEAS

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    1. Pesaran, M.H., 2004. "‘General Diagnostic Tests for Cross Section Dependence in Panels’," Cambridge Working Papers in Economics 0435, Faculty of Economics, University of Cambridge.
    2. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth; A Summary of the Recent Literature," IMF Working Papers 2001/175, International Monetary Fund.
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    Cited by:

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    2. Villaverde, José & Maza, Adolfo, 2015. "The determinants of inward foreign direct investment: Evidence from the European regions," International Business Review, Elsevier, vol. 24(2), pages 209-223.

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