Spatial effects of foreign direct investment in US states

Spatial effects of foreign direct investment in US states

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Article ID: iaor2012702
Volume: 45
Issue: 1
Start Page Number: 16
End Page Number: 40
Publication Date: Feb 2012
Journal: Canadian Journal of Economics/Revue canadienne d'conomique
Authors: , ,
Keywords: investment
Abstract:

This paper estimates the aggregate productivity effects of Marshallian externalities generated by foreign direct investment (FDI) in US states, controlling for Marshallian externalities and other spatial spillovers generated by domestic firms. A regional production function framework models externalities and other spatial spillovers explicitly as determinants of total factor productivity. We employ a system generalized method of moments (GMM) estimator to account for the potential endogeneity of FDI and the presence of spatial lags. Using data for US states from 1977–2003, the results indicate that FDI generates positive externalities, while externalities from domestic firms are negative.

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