Abstract
In urban economics, and more recently in the international economics literature, agglomeration has been offered as a principal determinant of new investment. Yet agglomeration has rarely been subject to precise statistical tests. In this paper, the availability of detailed urban and regional data for Portugal allowed for a close study of the spatial choices for newly created foreign-owned plants. It appears that agglomeration economies are decisive location factors. Service agglomeration has a notably strong effect, while industry-level localization economies and urbanization externalities are verifiable location determinants as well. Distance from the principal cities is statistically significant, but there is no evidence that local labor costs matter.
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