Regional foreign direct investment in manufacturing. Do agglomeration economies matter?

Abstract

This paper examines the role played by agglomeration economies as location determinants of regional foreign direct investment in manufacturing. The analysis reveals that foreign direct investment location is dependent on specific industry traits, and that agglomeration economies appear as the strongest pull factors. The model, estimated with panel data, finds evidence, first, that industries with a high level of linkages are attracted to regions with high manufacturing activity; and, second, that locations which accumulate R+D activities attract chemical industries. Finally, cost-oriented industries do not value agglomeration economies and their localization emerges due to endowment reasons.