The Distribution of Foreign Investment and Regional Policy

Abstract:     
In this note economic integration is viewed as a situation where countries within a union coordinate their industrial policies. We demonstrate that greater regional policy coordination between countries may induce more specialization instead of the intended diversification in interregional allocations of foreign investment. Thus international capital flows tend to become more concentrated in an integrated economy. This is in contrast to the objectives of regional policy of the European union.

Number of Pages in PDF File: 8

Keywords: Economic integration, foreign investment, regional policy, specialization, diversification

JEL Classification: F15

Accepted Paper Series