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Agglomeration economies and the location of foreign direct investment: quasi-experimental evidence from Romania

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  • Hilber, Christian A. L.
  • Voicu, Ioan

Abstract

How important are agglomeration economies for the location of foreign manufacturing plants? We investigate this question by combining innovations from previous studies and by taking advantage of a quasi-experimental setting: the political and economic transition in Romania. The recent, sudden and sustained influx of foreign investors into Romania provides an ideal setting to disentangle agglomeration economies from endowment effects. Using a countylevel conditional logit set-up that controls for choice-specific fixed effects and endowment effects, we find that external economies from industry-specific foreign agglomeration and service agglomeration are important location determinants. Increases in the number of foreign plants and in service employment density by 10 percent make the average county 2.2 and 6.2 percent more likely to attract a new foreign investor. Local labor market conditions also matter. Our findings suggest that results are sensitive to the choice of geographical unit of observation and the inclusion of locational fixed effects.

Suggested Citation

  • Hilber, Christian A. L. & Voicu, Ioan, 2006. "Agglomeration economies and the location of foreign direct investment: quasi-experimental evidence from Romania," LSE Research Online Documents on Economics 3574, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:3574
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    File URL: http://eprints.lse.ac.uk/3574/
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    1. repec:sgh:gosnar:y:2017:i:1:p:53-68 is not listed on IDEAS
    2. Ulrich Wagner & Christopher Timmins, 2009. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 231-256, June.
    3. Ki-Dong Lee & Seok-Joon Hwang & Min-hwan Lee, 2012. "Agglomeration economies and location choice of Korean manufacturers within the United States," Applied Economics, Taylor & Francis Journals, vol. 44(2), pages 189-200, January.

    More about this item

    Keywords

    agglomeration economies; foreign direct investment; transition economies.;

    JEL classification:

    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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