Firm Location Decisions, Regional Grants and Agglomeration Externalities
Advanced Institute of Management Research Paper No. 038
42 Pages Posted: 29 Nov 2008
Date Written: May 28, 2006
We examine whether discretionary government grants influence the location of new plants. Grants have a small effect in attracting plants to specific geographic areas, but their effectiveness increases with agglomeration externalities, measured by the number of other plants in that location in the same industry. We also find evidence that regional industrial structure affects the location of new entrants: firms in more agglomerated industries locate new plants near to others in the same industry, and firms are also attracted to industrially diversified locations. Foreign multinationals locate new plants near to other foreign-owned plants in the same industry.
Suggested Citation: Suggested Citation