Spatial complementarity of FDI: the example of transition countries
other
fdi
spatial-econometrics
transition-economies
Post-Communist Economies, 2012.
We study the spatial determinants of FDI location — FDI in neighbouring countries and foreign market potential — across a panel of 25 transition countries from 1993 to 2010. Spatial FDI spillovers are positive and economically large; omitting them seriously misspecifies models of FDI location. The complementarity is stronger in disaggregated (bilateral, sector-level) data, with substantial heterogeneity across sectors: spillovers are large and positive in services but non-significant or even negative in manufacturing.
Show abstract
We study the spatial determinants of FDI location — FDI in neighbouring countries and foreign market potential — across a panel of 25 transition countries from 1993 to 2010. Spatial FDI spillovers are positive and economically large; omitting them seriously misspecifies models of FDI location. The complementarity is stronger in disaggregated (bilateral, sector-level) data, with substantial heterogeneity across sectors: spillovers are large and positive in services but non-significant or even negative in manufacturing.
Foreign direct investment into one transition country raises, rather than diverts, FDI into its neighbours — the opposite of the substitution effect that simple location-competition models predict. We show FDI flows into this region are spatial complements, most plausibly through shared supply chains and demonstration effects on investor perceptions of the wider region.
Published in: Post-Communist Economies, 24(3), 327–349