Kiel Working Papers, Kiel Institute for World Economics
No 1535:
Spatial Effects of Foreign Direct Investment in US States
Eckhardt Bode, Peter Nunnenkamp and Andreas Waldkirch
Abstract: Abstract: This paper estimates the aggregate productivity
effects of Marshallian externalities generated by foreign direct
investments (FDI) in the US. In contrast to earlier work, this paper puts
special emphasis on controlling for Marshallian externalities and other
intra- and inter-regional spillovers generated by domestic firms. The
productivity effects of these externalities may, if not accounted for
appropriately, be falsely attributed to FDI. This paper also deals with the
potential endogeneity of FDI and the presence of spatial lags by employing
a system generalized method of moments (GMM) estimator. We use a regional
production function framework that models Marshallian externalities and
other intra- and inter-regional spillovers explicitly as determinants of
total factor productivity, and tests several empirical specifications of
this model, using data for US states from 1977—2003. The results indicate
that FDI does, in fact, generate positive externalities, while those from
domestic firms are negative
Keywords: Foreign Direct Investment, US States, Spatial Econometrics, Marshallian Externalities; (follow links to similar papers)
JEL-Codes: C31,; F21,; F23; (follow links to similar papers)
37 pages, July 2009
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