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Delving into the FDI-economic growth relationship at the regional level: Headquarters effect in FDI data

Author

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  • Maza, Adolfo
  • Hierro, Maria

Abstract

Although mostly at the national level, the nexus between FDI and economic growth has always been a subject of vigorous debate in the economic literature. This paper highlights the importance of the headquarters effect when the issue is addressed at the regional level. It does so by means of estimation techniques that capture cross-sectional dependence, since it is by definition highly probable when moving from country to region as the unit of study, and also allow for different coefficients between regions. To this end, and using the Spanish case as a sort of laboratory over the period 2004–2021, we propose a strategy to remove the headquarters effect from the original FDI data, and then compare the results obtained with both data sets, raw and free of the headquarters effect. Our findings demonstrate the importance of addressing this shortfall in FDI data before drawing conclusions about its role as a growth factor. Furthermore, they reveal notable differences between regions in how FDI affects economic activity.

Suggested Citation

  • Maza, Adolfo & Hierro, Maria, 2025. "Delving into the FDI-economic growth relationship at the regional level: Headquarters effect in FDI data," International Review of Economics & Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:reveco:v:97:y:2025:i:c:s1059056024008219
    DOI: 10.1016/j.iref.2024.103829
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    More about this item

    Keywords

    FDI; Economic growth; Headquarters effect; Heterogeneous panel; Cross-sectional dependence;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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