Location, localisation, agglomeration: an examination of the geographical dimension of FDI spillovers

In this chapter we use firm-level data from the Greek manufacturing sector to identify how three features of economic geography – spatial heterogeneity, spatial proximity and spatial concentration – influence the size and sign of intra- and inter-industry FDI spillovers. We find that FDI spillovers predominantly materialise at the sub-national level, with horizontal spillovers being more prominent at the regional level and vertical spillovers being highly localised. Furthermore, we find important synergies between spillovers from FDI and industry- and region-specific agglomeration. Also, our findings show that FDI spillovers are conditional on regional characteristics related to a region’s manufacturing base, FDI concentration, urban agglomeration and aggregate productivity. These results highlight the important role played by geography for the materialisation of FDI productivity spillovers and suggest that these key geographical features ought to be taken into account both in the study of FDI spillovers and in the design of FDI-promotion and regional development policies.