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Location Clusters, FDI and Local Entrepreneurs: Consistent Public Policy

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  • João Ricardo Faria

    (University of Texas at El Paso)

Abstract

In order to formulate public policy consistent with attracting foreign investment and fostering regional development, this paper analyzes a model of local entrepreneur’s choices when they are affected by foreign direct investment (FDI) spillovers. FDI is determined by economies of agglomeration, market size, taxes, labor, and location costs. It is shown that location costs of the multinationals (MNE) affect the optimal quantity of MNE capital and regional development, while location costs and preferences of local entrepreneurs affect only their location and consumption. Other determinants of MNE location also impact regional development. The main policies advocated are as follows: provision of logistical infrastructure; creation and/or nurturing of pro-market institutions; non-discretionary policies; reduction of statutory tax rate; incentives to universities and research centers.

Suggested Citation

  • João Ricardo Faria, 2016. "Location Clusters, FDI and Local Entrepreneurs: Consistent Public Policy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 7(4), pages 858-868, December.
    • Handle: RePEc:spr:jknowl:v:7:y:2016:i:4:d:10.1007_s13132-015-0272-5
    DOI: 10.1007/s13132-015-0272-5
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    Cited by:

    1. Wasseem Mina, 2017. "The Race to the Top: Institutional Clusters and World FDI Shares," Working Papers 1136, Economic Research Forum, revised 09 2003.
    2. João Ricardo Faria & Franklin G. Mixon, 2022. "Labor Markets and Sustainability: Short-Run Dynamics and Long-Run Equilibrium," Sustainability, MDPI, vol. 14(7), pages 1-10, April.
    3. Boikos, Spyridon & Bournakis, Ioannis & Christopoulos, Dimitris & McAdam, Peter, 2023. "Financial reforms and innovation: A micro–macro perspective," Journal of International Money and Finance, Elsevier, vol. 132(C).
    4. João Ricardo Faria & Laudo Ogura & Mauricio Prado & Christopher J. Boudreaux, 2023. "Government investments and entrepreneurship," Small Business Economics, Springer, vol. 61(4), pages 1657-1670, December.
    5. João Ricardo Faria & Mauricio Prado & João J. Ferreira, 2022. "Informality, Infrastructure Investments, and New Firms’ Creation: The Location Strategy," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(1), pages 321-331, March.

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    More about this item

    Keywords

    Multinationals; Regional policy; Spillovers;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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