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Seong-Hee Kim, Todd S. Pickton and Shelby Gerking |
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Foreign Direct Investment: Agglomeration Economies and Returns to Promotion Expenditures |
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The Review of Regional Studies 2003 33(1): 61-72.
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Abstract:
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The effect of a state’s financial incentives to attract foreign direct investments (FDI) is a frequent
topic for both economists and policy makers. Many studies have shown that FDI are
disproportionately concentrated in states with agglomeration economies. This paper uses a
conditional logit model with FDI (new plants) data from 1987-1994 to explore the relationship
between state efforts, state characteristics, and FDI attraction. Key results show that both
promotion expenditures and agglomeration economies are important in attracting foreign plants.
Results also indicate that promotion expenditures by states with small economies can partially
offset location disadvantages of agglomeration (urbanization and/or localization) economies and
thus appear to be a useful economic development tool as states compete for investment.
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