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Technology, Agglomeration, and Regional Competition for Investment


  • Bruce A. Blonigen

    () (University of Oregon Economics Department)

  • Van Kolpin

    () (University of Oregon Economics Department)


The active "courting" of firms by municipalities, regions, and even nations has a long-standing history and the competition for firm location through a wide variety of incentives seems to have escalated to new heights in recent years. We develop a model that explores technology development by firms that face regional competition for their investment and examine the endogenous determination of regions’ policies, firm technology, and agglomeration externalities. In particular, we find that regional competition leads firms to inefficiently distort their research and development efforts in hopes of improving their standing in the competition amongst regions for their investment. This loss in efficiency is aggravated by the agglomeration externalities that are inherently present in many industries. We offer several case studies that provide evidence consistent with our theoretical conclusions.

Suggested Citation

  • Bruce A. Blonigen & Van Kolpin, 2001. "Technology, Agglomeration, and Regional Competition for Investment," University of Oregon Economics Department Working Papers 2001-10, University of Oregon Economics Department, revised 01 Jun 2001.
  • Handle: RePEc:ore:uoecwp:2001-10

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    References listed on IDEAS

    1. Ludema, Rodney D. & Wooton, Ian, 2000. "Economic geography and the fiscal effects of regional integration," Journal of International Economics, Elsevier, vol. 52(2), pages 331-357, December.
    2. Hanson, Gordon H., 1996. "Agglomeration, Dispersion, and the Pioneer Firm," Journal of Urban Economics, Elsevier, vol. 39(3), pages 255-281, May.
    3. Davies, Ronald B., 2005. "State tax competition for foreign direct investment: a winnable war?," Journal of International Economics, Elsevier, vol. 67(2), pages 498-512, December.
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    5. Bond, Eric W & Samuelson, Larry, 1986. "Tax Holidays as Signals," American Economic Review, American Economic Association, vol. 76(4), pages 820-826, September.
    6. Ian King & R. Preston McAfee & Linda Welling, 1993. "Industrial Blackmail: Dynamic Tax Competition and Public Investment," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 590-608, August.
    7. Head, Keith & Ries, John, 1996. "Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China's Incentive Areas," Journal of Urban Economics, Elsevier, vol. 40(1), pages 38-60, July.
    8. Black, Dan A & Hoyt, William H, 1989. "Bidding for Firms," American Economic Review, American Economic Association, vol. 79(5), pages 1249-1256, December.
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    Cited by:

    1. Goldberg , Mike & Palladini, Eric, 2008. "Chile : a strategy to promote innovative small and medium enterprises," Policy Research Working Paper Series 4518, The World Bank.

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    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives


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