IDEAS home Printed from https://ideas.repec.org/p/cer/papers/wp438.html
   My bibliography  Save this paper

The Role of Investment Incentives in Regional FDI Reallocation: A Regression-Discontinuity Approach

Author

Listed:
  • Marian Dinga

Abstract

This paper analyzes the causal effect of investment incentives on regional allocation of foreign direct investment (FDI) in the Czech Republic during 2001-2007. Investment incentives institutional setup provided foreign investors with financial incentives depending on the particular district unemployment rate. The identification strategy is based on a regression-discontinuity approach as the scheme design introduces three unemployment thresholds differentiating the amount of the subsidy. The results indicate a positive effect of the investment scheme, but this impact is concentrated only at the lowest available unemployment threshold, increasing annual FDI inflow per capita by 330 euros compared to districts ineligible for the subsidy. However, an impact at higher unemployment thresholds is not found. Attracting FDI into the most distressed regions needs to be complemented with other policy tools and remains to be an important challenge for policymakers. Among other FDI location factors, the share of tertiary educated labor force and wages have significant positive impact on FDI, albeit only during 2001-2004, increasing annual FDI inflow per capita by 25 and 12 euros, respectively.

Suggested Citation

  • Marian Dinga, 2011. "The Role of Investment Incentives in Regional FDI Reallocation: A Regression-Discontinuity Approach," CERGE-EI Working Papers wp438, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp438
    as

    Download full text from publisher

    File URL: http://www.cerge-ei.cz/pdf/wp/Wp438.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    2. repec:hal:wpspec:info:hdl:2441/c8dmi8nm4pdjkuc9g8o118937 is not listed on IDEAS
    3. Nauro F. Campos & Yuko Kinoshita, 2002. "Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies," Manchester School, University of Manchester, vol. 70(3), pages 398-419, June.
    4. David S. Lee & Thomas Lemieux, 2009. "Regression Discontinuity Designs In Economics," Working Papers 1118, Princeton University, Department of Economics, Industrial Relations Section..
    5. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    6. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    7. Dinga, Marián & Münich, Daniel, 2010. "The impact of territorially concentrated FDI on local labor markets: Evidence from the Czech Republic," Labour Economics, Elsevier, vol. 17(2), pages 354-367, April.
    8. Salvador Barrios & Holger Görg & Eric Strobl, 2006. "Multinationals' Location Choice, Agglomeration Economies, and Public Incentives," International Regional Science Review, , vol. 29(1), pages 81-107, January.
    9. Lansbury, Melanie & Pain, Nigel & Smidkova, Katerina, 1996. "Foreign Direct Investment in Central Europe Since 1990: An Econometric Study," National Institute Economic Review, National Institute of Economic and Social Research, vol. 156, pages 104-114, May.
    10. Paulo Guimaraes & Robert J. Rolfe & Douglas P. Woodward, 1998. "Regional Incentives and Industrial Location in Puerto Rico," International Regional Science Review, , vol. 21(2), pages 119-138, August.
    11. William F. Fox & Matthew N. Murray, 2004. "Do Economic Effects Justify the Use of Fiscal Incentives?," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 78-92, July.
    12. Claudia Guagliano & Stefano Riela, 2005. "Do special economic areas matter in attracting FDI? Evidence from Poland, Hungary and Czech Republic," ISLA Working Papers 21, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy, revised Nov 2005.
    13. Carlton, Dennis W, 1983. "The Location and Employment Choices of New Firms: An Econometric Model with Discrete and Continuous Endogenous Variables," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 440-449, August.
    14. Smith Jr. , Donald F. & Florida Richard, 1994. "Agglomeration and Industrial Location: An Econometric Analysis of Japanese-Affiliated Manufacturing Establishments in Automotive-Related Industries," Journal of Urban Economics, Elsevier, vol. 36(1), pages 23-41, July.
    15. Roberto, Basile, 2004. "Acquisition versus greenfield investment: the location of foreign manufacturers in Italy," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 3-25, January.
    16. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    17. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    18. Stepan Jurajda & Juraj Stancik, 2012. "Foreign Ownership and Corporate Performance: The Czech Republic at EU Entry," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(4), pages 306-324, August.
    19. Oecd, 2000. "Main Determinants and Impacts of Foreign Direct Investment on China's Economy," OECD Working Papers on International Investment 2000/4, OECD Publishing.
    20. Daniel V. Rainey & Kevin T. McNamara, 1999. "Taxes and the Location Decision of Manufacturing Establishments," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 21(1), pages 86-98.
    21. Štěpán Jurajda & Katherine Terrell, 2009. "Regional unemployment and human capital in transition economies1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(2), pages 241-274, April.
    22. Tondl, Gabriele & Vuksic, Goran, 2003. "What makes regions in Eastern Europe catching up? The role of foreign investment, human resources and geography," ZEI Working Papers B 12-2003, University of Bonn, ZEI - Center for European Integration Studies.
    23. Coughlin, Cletus C & Terza, Joseph V & Arromdee, Vachira, 1991. "State Characteristics and the Location of Foreign Direct Investment within the United States," The Review of Economics and Statistics, MIT Press, vol. 73(4), pages 675-683, November.
    24. Mei Wen, 2007. "Foreign direct investment, regional market conditions and regional development," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(1), pages 125-151, January.
    25. Hansen, Eric R., 1987. "Industrial location choice in Sao Paulo, Brazil : A nested logit model," Regional Science and Urban Economics, Elsevier, vol. 17(1), pages 89-108, February.
    26. Austin Nichols, 2007. "Causal inference with observational data," Stata Journal, StataCorp LP, vol. 7(4), pages 507-541, December.
    27. Gerhard Untiedt & Hans Joachim Schalk, 2000. "Regional investment incentives in Germany: Impacts on factor demand and growth," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 34(2), pages 173-195.
    28. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    29. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    30. Pham Hoang Mai, 2002. "Regional Economic Development and Foreign Direct Investment Flows in Vietnam, 1988-98," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 7(2), pages 182-202.
    31. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kottaridi, Constantina & Louloudi, Konstantina & Karkalakos, Sotiris, 2019. "Human capital, skills and competencies: Varying effects on inward FDI in the EU context," International Business Review, Elsevier, vol. 28(2), pages 375-390.
    2. Schäffler, Johannes & Hecht, Veronika & Moritz, Michael, 2014. "Regional determinants of German FDI in the Czech Republic : evidence from a gravity model approach," IAB-Discussion Paper 201403, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blanc-Brude, Frédéric & Cookson, Graham & Piesse, Jenifer & Strange, Roger, 2014. "The FDI location decision: Distance and the effects of spatial dependence," International Business Review, Elsevier, vol. 23(4), pages 797-810.
    2. Josep‐Maria Arauzo‐Carod & Daniel Liviano‐Solis & Miguel Manjón‐Antolín, 2010. "Empirical Studies In Industrial Location: An Assessment Of Their Methods And Results," Journal of Regional Science, Wiley Blackwell, vol. 50(3), pages 685-711, August.
    3. repec:zbw:rwirep:0100 is not listed on IDEAS
    4. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 247-348, Elsevier.
    5. Jonathan Jones, 2017. "Agglomeration economies and the location of foreign direct investment: A meta-analysis," Journal of Regional Science, Wiley Blackwell, vol. 57(5), pages 731-757, November.
    6. Spies, Julia, 2010. "Network and border effects: Where do foreign multinationals locate in Germany?," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 20-32, January.
    7. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    8. Christian Hilber & Ioan Voicu, 2010. "Agglomeration Economies and the Location of Foreign Direct Investment: Empirical Evidence from Romania," Regional Studies, Taylor & Francis Journals, vol. 44(3), pages 355-371.
    9. Salvador Barrios & Holger Görg & Eric Strobl, 2006. "Multinationals' Location Choice, Agglomeration Economies, and Public Incentives," International Regional Science Review, , vol. 29(1), pages 81-107, January.
    10. Procher, Vivien, 2009. "Agglomeration Effects and the Location of Foreign Direct Investment – Evidence from French First-time Movers," Ruhr Economic Papers 100, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Nalin Kumar Ramaul & Pinki Ramaul, 2018. "Regional Incentives and Location Choice of New Firms in India: A Nested Logit Model," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(2), pages 501-525, June.
    12. Vivien Procher, 2009. "Agglomeration Effects and the Location of Foreign Direct Investment – Evidence from French First-time Movers," Ruhr Economic Papers 0100, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    13. Kandogan, Yener, 2012. "Regional foreign direct investment potential of the states within the US," Journal of Economics and Business, Elsevier, vol. 64(4), pages 306-322.
    14. Simon Falck & Hans Westlund, 2013. "Regional Grants And Fdi Location: Evidence From Swedish Regional Policy Programs 2002-2009," Romanian Journal of Regional Science, Romanian Regional Science Association, vol. 7(1), pages 36-68, JUNE.
    15. Andrzej Cieślik, 2005. "Regional characteristics and the location of foreign firms within Poland," Applied Economics, Taylor & Francis Journals, vol. 37(8), pages 863-874.
    16. Yamashita, Nobuaki & Matsuura, Toshiyuki & Nakajima, Kentaro, 2014. "Agglomeration effects of inter-firm backward and forward linkages: Evidence from Japanese manufacturing investment in China," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 24-41.
    17. Fabienne Boudier‐Bensebaa, 2005. "Agglomeration economies and location choice: Foreign direct investment in Hungary," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 605-628, October.
    18. Megha Mukim & Peter Nunnenkamp, 2012. "The Location Choices of Foreign Investors: A District-level Analysis in India," The World Economy, Wiley Blackwell, vol. 35(7), pages 886-918, July.
    19. Ilona Elzbieta Serwicka & Jonathan Jones & Colin Wren, 2014. "The Motives for the FDI Location Choice in the `Old' and `New' Europe," ERSA conference papers ersa14p255, European Regional Science Association.
    20. Koenig, Pamina & MacGarvie, Megan, 2011. "Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe," Journal of Health Economics, Elsevier, vol. 30(5), pages 950-965.
    21. Basile, Roberto & Castellani, Davide & Zanfei, Antonello, 2008. "Location choices of multinational firms in Europe: The role of EU cohesion policy," Journal of International Economics, Elsevier, vol. 74(2), pages 328-340, March.

    More about this item

    Keywords

    foreign direct investment; government expenditures; public incentives; regional development;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cer:papers:wp438. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucie Vasiljevova (email available below). General contact details of provider: https://edirc.repec.org/data/eiacacz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.