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The dynamics of FDI location: a markov analysis for British regions

  • Jonathan Jones
  • Colin Wren
Registered author(s):

    The paper uses the framework of Markov chains to examine convergence in the location of inward foreign direct investment across the regions of Great Britain over 1985-2005. An analysis is undertaken by industry group that disaggregates manufacturing and services. It finds convergence in regional FDI shares, both overall and by industry, which supports agglomeration. As explanations, a weakening of regional policy has led manufacturing FDI to spread-out from ‘north’ to ‘south’, but in services there is a shift in FDI location within the ‘south’ from core to contiguous regions, suggesting diseconomies at the core. The paper finds different spatial processes and draws implications for regional policy.

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    File URL: http://eprints.lse.ac.uk/33497/
    File Function: Open access version.
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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 33497.

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    Length: 35 pages
    Date of creation: Nov 2009
    Date of revision:
    Handle: RePEc:ehl:lserod:33497
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    Web page: http://www.lse.ac.uk/
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    1. Steven Brand & Stephen Hill & Max Munday, 2000. "Assessing the Impacts of Foreign Manufacturing on Regional Economies: The Cases of Wales, Scotland and the West Midlands," Regional Studies, Taylor & Francis Journals, vol. 34(4), pages 343-355.
    2. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-43, December.
    3. Matthieu Crozet & Thierry Mayer & Jean-Louis Mucchielli, 2004. "How do firms agglomerate? A study of FDI in france," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
    4. Gilles Duranton & Henry G Overman, 2006. "Exploring the Detailed Location Patterns of UK Manufacturing Industries using Microgeographic Data," Working Papers tecipa-248, University of Toronto, Department of Economics.
    5. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
    6. Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
    7. Colin Wren, 2005. "Regional grants: are they worth it?," Fiscal Studies, Institute for Fiscal Studies, vol. 26(2), pages 245-275, June.
    8. Magrini, Stefano, 1999. "The evolution of income disparities among the regions of the European Union," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 257-281, March.
    9. Keith Head & John Ries & Deborah Swenson, 1994. "Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States," NBER Working Papers 4767, National Bureau of Economic Research, Inc.
    10. Maarten Bosker & Waldo Krugell, 2008. "Regional Income Evolution In South Africa After Apartheid," Journal of Regional Science, Wiley Blackwell, vol. 48(3), pages 493-523.
    11. Kim, Seong-Hee & Pickton, Todd S. & Gerking, Shelby, 2003. "Foreign Direct Investment: Agglomeration Economies and Returns to Promotion Expenditures," The Review of Regional Studies, Southern Regional Science Association, vol. 33(1), pages 61-72.
    12. John B Parr, 2002. "Agglomeration economies: ambiguities and confusions," Environment and Planning A, Pion Ltd, London, vol. 34(4), pages 717-731, April.
    13. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    14. Danny Quah, 1992. "Empirical cross-section dynamics in economic growth," Discussion Paper / Institute for Empirical Macroeconomics 75, Federal Reserve Bank of Minneapolis.
    15. Diego Puga, 1996. "The Rise and Fall of Regional Inequalities," CEP Discussion Papers dp0314, Centre for Economic Performance, LSE.
    16. Wren, Colin & Jones, Jonathan, 2009. "Re-investment and the survival of foreign-owned plants," Regional Science and Urban Economics, Elsevier, vol. 39(2), pages 214-223, March.
    17. Devereux, Michael P. & Griffith, Rachel & Simpson, Helen, 2007. "Firm location decisions, regional grants and agglomeration externalities," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 413-435, April.
    18. Fingleton, Bernard, 1997. "Specification and Testing of Markov Chain Models: An Application to Convergence in the European Union," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(3), pages 385-403, August.
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