The objective of this paper is to test for the importance of local agglomeration externalities in determining the Foreign Direct Investment (FDI) intensity that is viewed as a measure of firms' competitive performance in host locations. By analyzing the link between the degree of FDI inflow penetration and its determinants at the regional level, alternative fixed effects panel data model specifications, also extended to include spatial effects, are examined with the aim of testing the hypothesis of (i) panel homogeneity/heterogeneity in slope coefficients; (ii) panel heterogeneity in slope coefficients with uniform (region specific) spatial dependence, and (iii) panel heterogeneity in slope coefficients with varying (region specific) spatial dependence. It is found that sector specificities are relevant in attracting inward FDI in Italy. Significant differences within regions emerge when intra-industry and inter-industry as well as endogenous spatial spillovers are controlled for. There is also evidence that the importance of spatial dependence varies across regions.
|