Spatial Linkages in FDI Location: Evidence from the Spanish Regions

Paula Gutiérrez‐Portilla,Adolfo Maza,José Villaverde

doi:10.1111/tesg.12346

Paula Gutiérrez‐Portilla, Adolfo Maza + Show 1 more

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https://doi.org/10.1111/tesg.12346

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Abstract

AbstractThis paper examines the main factors behind the regional location of foreign direct investment (FDI) in Spain, at both the aggregate and sectoral levels, over the 1996‐2013 period. To do so, a panel spatial Durbin model, which allows us to unveil patterns of substitution or complementarity in FDI across regions, is estimated. Our findings reveal that inward FDI in one region is complementary to that in neighbouring regions, a conclusion that is consistent with a complex vertical FDI strategy. Besides, they tend to confirm the hypotheses that FDI exhibits some inertia and is attracted by regions with: (i) large market size; (ii) large surrounding‐market potential; and (iii) high levels of human capital and wages. However, the results cast some doubts on the role played by infrastructure, R&D and regional differences in taxes as key elements in attracting FDI.

Highlights

The rapid increase in foreign direct investment (FDI ) over the last few decades has fostered the interest in the study of its determinants in the economic literature, both at theoretical and empirical levels
It adds to previous papers in four respects: firstly, in that spatial interactions are included in all variables; secondly, in that the normalization of the distance matrix is more reliable than in most papers as it avoids interpretation problems; thirdly, in that it does not use point estimates when it comes to defining FDI strategies, which could lead to misleading conclusions, and, in that it develops the analysis at both aggregate and sectoral levels
After a revision of the theoretical and empirical literature on FDI strategies and its determinants carried out in the second section, we present the model specification and data, and discuss the empirical results

Summary

Introduction

The rapid increase in foreign direct investment (FDI ) over the last few decades has fostered the interest in the study of its determinants in the economic literature, both at theoretical and empirical levels. The same authors (Blonigen et al, 2008), estimate a spatial lag model using FDI data from OECD countries into the US over the period 1980-2000, the results indicating the existence of an export-platform FDI strategy in the European subsample.

Results

Conclusion