Agglomeration Economies and the Location of Foreign Direct Investment: Empirical Evidence from Romania

Hilber, Christian A. L. and Voicu, Ioan (2007): Agglomeration Economies and the Location of Foreign Direct Investment: Empirical Evidence from Romania.

Abstract

Relatively little is known about the determinants of FDI location in transition economies. We exploit the large inflow of FDI into Romania, after the revolution in 1989, to study this question. Using a conditional logit setup, we find that external economies from service agglomeration are the main determinant of FDI-location. An increase in service employment density by 10 percent makes the average Romanian county 11.9 percent more likely to attract a foreign investor. Industry specific foreign and domestic agglomeration economies and labor conflicts also impact FDI-location. Our findings imply that results are sensitive to the inclusion of locational fixed effects.

• Item Type: MPRA Paper
• Institution: London School of Economics
• Language: English
• Keywords: Agglomeration economies; foreign direct investment; transition economies
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location; P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P33 - International Trade, Finance, Investment, Relations, and Aid

References

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