On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach

Abstract

This paper empirically examines the key factors driving UK direct investment in the Spanish regions over the period 2000–2016 and, consequently, tries to unveil its main motivation. Applying a spatial Durbin panel model to capture spatial linkages, the results point to the existence of complementarity between the FDI received by a region and that of the remaining ones. This outcome, along with a positive and statistically significant spillover effect of market potential, reveals that complex‐vertical FDI motivation with agglomeration economies prevails among UK MNEs investing in Spain. Additionally, our findings unveil the role played by some other FDI drivers, such as wages and infrastructure. Furthermore, the paper is unique in decomposing the average direct and spillover effects by region and pairs of regions, so that remarkable differences can be identified. This breakdown has strong significance from a policy perspective since it can guide regional policy makers. In short, our findings point out to the fact that FDI policy should be jointly designed by those regions presenting strong bilateral spillover effects. Thus, greater cooperation among policy makers would be welcome.

BITs, Colony Ties, and Offshore Centers: The Case of United Kingdom Outward FDI

“…In general, we find that the horizontal motive is the primary reason for FDI for UK-based MNEs. Such result differs from existing studies, which typically find the importance of the vertical motive (Sirr et al, 2017;Maza et al, 2020). Our baseline analysis demonstrates that BITs act as a market access tool, resulting in a decrease of the horizontal type of inward FDI in a host economy.…”

Spatial Linkages in Chinese Service and Manufacturing Outward Fdi: Empirical Evidence From the United States

“…To further investigate the spillover effects in different regions and ensure the reliability of the final results, we consider the marginal effects, including the direct and indirect (spillover) effects, following Fonseca and Llamosas‐Rosas (2019) and Maza et al . (2020). Specifically, the direct effects refer to the average impact of the explanatory variables of a location on the FDI of the same location, whereas the indirect effects, or spillover effects, measure the impact of changes in the explanatory variables of neighbouring regions on the FDI in a specific area.…”

“…Previous research investigated spatial effects among countries; however, location choice for FDI in a refined region of a host country remains underexamined (Casi & Resmini 2014; Escobar Gamboa 2013; Maza et al . 2020). Exploring the dynamics of FDI at the subnational level can help us precisely identify the location behaviour of MNEs and the peculiarities of regions within a country that attract FDI (McCann & Mudambi 2005).…”

“…Previous studies relied mainly on a bilateral (home-host) framework but ignored the spatial dependence and characteristics of neighbouring regions (third-region effects) in FDI decisions (Blonigen et al 2007;Beugelsdijk et al 2010). Existing empirical studies employing spatial econometric techniques suggested that spatial effects influence FDI location decisions (Fonseca & Llamosas-Rosas 2019;Gutiérrez-Portilla et al 2019a;Maza et al 2020).…”

Between the Eurozone crisis and the Brexit: the decade of British outward FDI into Europe

“…The model is an extension of the original cross-country MNE theory developed inCarr et al (2001), andMarkusen, (2002).8 Introduction of a Rest of the World helps in explaining the "complementarity" of bilateral affiliate sales and trade with respect to country pair's economic size and similarity. As bilateral FDI empirically tends to be maximized when the home country's GDP is larger than the hosts.…”