Growth, Foreign Direct Investment and Urban Concentrations: Unbundling Spatial Lags

41 Pages Posted: 3 Dec 2008

Date Written: November 2008

Abstract

Cross-country regressions suggest that urbanization and FDI are important drivers of growth. However, it is not clear that primacy eventually hurts growth performance. Since it is tough to interpret cross-country growth regressions, we provide detailed evidence on the determinants of outward FDI from the US. FDI is higher in countries that are close to the US and have good institutions, well developed financial systems, a high road density, a high income per capita and substantial natural resource exports. Countries also attract more FDI if they have more medium-sized cities and primacy is not too large. We show that good institutions in neighbouring countries are important drivers of FDI. FDI is higher if neighbours suffer from primacy. However, FDI is attracted if surrounding countries have fewer cities, restrictions on international trade and low market potential (income per capita). We tentatively conclude that cities are important drivers of FDI and growth and unbundling spatial lags matters. Robustness is verified by re-estimating our regressions with fixed effects and for the sample of OECD countries.

Keywords: growth, foreign investment, cities, urbanization, primacy, spatial lags, spatial autoregression, surrounding market potential, fragmentation, export-platform

JEL Classification: C31, F21, F23, F43, O47, R11

Suggested Citation

Poelhekke, Steven and van der Ploeg, Frederick, Growth, Foreign Direct Investment and Urban Concentrations: Unbundling Spatial Lags (November 2008). CESifo Working Paper Series No. 2474, Available at SSRN: https://ssrn.com/abstract=1310067 or http://dx.doi.org/10.2139/ssrn.1310067

Steven Poelhekke

University of Auckland ( email )

Auckland
New Zealand

HOME PAGE: http://https://sites.google.com/site/stevenpoelhekke/

Frederick Van der Ploeg (Contact Author)

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
146
Abstract Views
1,377
Rank
360,704
PlumX Metrics