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Agglomeration, Relative Wage Costs and Foreign Direct Investment: Evidence from Swedish MNCs 1974-1998
KTH, School of Architecture and the Built Environment (ABE), Transport and Economics.ORCID iD: 0000-0003-0218-7924
KTH, School of Architecture and the Built Environment (ABE), Transport and Economics.ORCID iD: 0000-0001-8377-1633
2009 (English)In: Journal of Industry, Competition and Trade, ISSN 1566-1679, E-ISSN 1573-7012, Vol. 9, no 3, p. 197-217Article in journal (Refereed) Published
Abstract [en]

This paper examines the relationship between agglomeration economies and relative wage costs in influencing location of multinational corporations. An inflow of firms to certain regions and industries is likely to increase demand for labor. If mobility of labor is low increased costs can be expected to deter additional inflows of firms, albeit agglomeration economies may compensate for higher wages. Despite its important policy implications this relationship has to our knowledge not been exposed to empirical testing. The empirical analysis finds that foreign direct investment has become increasingly sensitive to differences in wage cost across industrialized countries, but also that agglomeration economies related to knowledge externalities positively influences higher costs. The relative strength of these two forces impacts the spatial distribution of production.

Place, publisher, year, edition, pages
USA: Springer Nature , 2009. Vol. 9, no 3, p. 197-217
Keywords [en]
FDI, agglomeration, relative costs
National Category
Economics
Identifiers
URN: urn:nbn:se:kth:diva-11836DOI: 10.1007/s10842-008-0042-1ISI: 000415550800001Scopus ID: 2-s2.0-68349128787OAI: oai:DiVA.org:kth-11836DiVA, id: diva2:284721
Note

QC 20110208

Available from: 2010-01-08 Created: 2010-01-08 Last updated: 2022-06-25Bibliographically approved
In thesis
1. Essays on Regional Growth, Comparative Advantages and Foreign Direct Investments
Open this publication in new window or tab >>Essays on Regional Growth, Comparative Advantages and Foreign Direct Investments
2010 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of four essays, covering four different topics. The first essay investigates the relationship between inter-firm labor mobility and regional productivity growth. Previous studies have shown that density is positively correlated with growth. I claim that it is not density in itself, but rather the attributes associated with it that drives economic growth. One such attribute is the increased possibility for labor mobility and knowledge diffusion that follows when firms and individuals locate in close proximity to each other. This hypothesis is tested using density as an instrument for labor mobility. The result shows that labor mobility increases regional growth rates.

The second essay examines the relationship between agglomeration economies and relative wage costs in influencing location of multinational corporations. An inflow of firms to certain regions and industries is likely to increase demand for labor. If mobility of labor is low increased costs can be expected to deter additional inflows of firms, albeit agglomeration economies may compensate for higher wages. The empirical analysis finds that FDI has become increasingly sensitive to differences in wage costs across industrialized countries, but also that agglomeration economies related to knowledge externalities positively influences higher costs.

The third essay looks at the impact of FDI on home country investments. Previous research has been inconclusive as regards the effects on domestic investments. In this article, we show that this inconclusiveness can be explained at a disaggregated level as a function of the way industries are organized. We argue that a complementary relationship can be expected to prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. The empirical analysis confirms a significant difference between the two categories of industry as regards the impact of outward FDI on domestic investment.

The fourth, and final, essay of this thesis analyses how increased R&D expenditures and market size influence the distribution of comparative advantage. Previous studies report ambiguous results and also refer to periods when markets were much more segmented and production factors less mobile. The empirical analysis comprises 19 OECD-countries and spans the period 1981 to 1999. It is shown how an increase in R&D-expenditures by one percentage point implies a three-percentage point increase in high-technology exports, whereas market size fails to attain significance. In addition, institutional factors influence the dynamics of comparative advantage.

Place, publisher, year, edition, pages
Stockholm: KTH, 2010. p. 18
Series
Trita-TEC-PHD, ISSN 1653-4468 ; 09-007
Keywords
Agglomeration, agglomeration economies, dynamic comparative advantage, FDI, gross domestic investment, industry-specific effects, institutions, labor mobility, market size, R&D, regional growth, relative costs
National Category
Economics
Identifiers
urn:nbn:se:kth:diva-11846 (URN)978-91-85539-48-2 (ISBN)
Public defence
2010-01-28, Flodissalen (F3), Lindstedtsvägen 26, Stockholm, 10:00 (English)
Opponent
Supervisors
Available from: 2010-01-11 Created: 2010-01-08 Last updated: 2022-06-25Bibliographically approved

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Thulin, Per

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