University of Cambridge > > Land Economy Departmental Seminar Series > Government Quality and Foreign Investment in the European Regions

Government Quality and Foreign Investment in the European Regions

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Multinational Enterprises (MNEs) are key ‘tectonic forces’, shaping the ‘mountains’ in a far‐from‐flat world economic geography. The total value added generated by MNEs accounts for approximately 25 percent of world GDP . MNE foreign subsidiaries alone generate more than 10 per cent of world GDP (UNCTAD, 2015). However, still very little is known about the factors able to shape the longterm location decisions of MNEs and their geography. In particular territorial/spatial factors and local institutional conditions have been often overlooked in existing MNE location analyses. This paper explores the role of sub‐national institutional quality (Quality of Government) in attracting foreign direct investments (FDI) in the regions of the European Union (EU). Using count data on greenfield FDI in the European TL2 regions for the 2009‐2013 period, the empirical results show that regional quality of government affects the location of inward investment: regions with better government quality attract more foreign investors, even after controlling for overall country‐level institutional quality. This is particularly true for investment projects in production and R&D activities. Conversely, service activities are only indirectly affected by the regional quality of government: they tend to follow the location of production investment projects that, in their turn, are attracted by locations with high quality of government.

Keywords: Quality of government, Institutions, FDI ,

Multinationals, Regions, European Union. Jel codes: C14 , C21, F23 , H7, R3 This research is still work‐in‐progress and a draft paper is not available yet.


Riccardo Crescenzi is an Associate Professor of Economic Geography at the London School of Economics and the current holder of a European Research Council Grant. Before joining the LSE Riccardo was a Jean Monnet Fellow at the European University Institute in Florence. He has been visiting scholar at a number of universities, including the Kennedy School of Government, Harvard University and the School of Public Policy, University of California Los Angeles (UCLA). Riccardo has provided academic advice to, amongst others, the European Investment Bank, the European Parliament, the European Commission (DG Regional Policy), the Inter‐ American Development Bank and various regional governments. His research is focused on Regional Economic Development and Growth, Innovation, Multinational Firms and the analysis and evaluation of European Union development policies.

This talk is part of the Land Economy Departmental Seminar Series series.

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