Skip to main content


Buy Article:

$43.00 plus tax (Refund Policy)


Foreign direct investment (FDI) is seen as a way to import technology and catch up with economic leaders. It is therefore important to understand why some countries attract more investments by multinationals than others. We expand the set of common determinants of FDI with urban agglomerations and ask the question whether the accessibility of market potential and the number of potential investment locations, in the shape of urban concentrations, matters, since the importance of urban agglomeration economies for FDI has not been investigated before. We show that countries with several medium-sized cities attract more foreign investment, especially if they are close to main agglomerations, but too much concentration (primacy) reduces the inflow of FDI. Moreover, we unbundle spatially lagged FDI by including spatial lags of the determinants of FDI. It is important to disentangle such third-country effects in order to understand how FDI flows depend on the complex ways in which multinationals fragment sales and production across countries. Using a panel of U.S. affiliates’ sales in foreign countries between 1984 and 1998, we find evidence that cities are important drivers of FDI. Furthermore, third-country effects suggest that horizontal and complex forms of FDI coexist.
No References
No Citations
No Supplementary Data
No Data/Media
No Metrics

Document Type: Research Article

Affiliations: 1: Research Department, De Nederlandsche Bank, Westeinde 1, 1017 ZN Amsterdam, The Netherlands., Email: [email protected] 2: Department of Economics, Manor Road, University of Oxford, Oxford OX1 3UQ, United Kingdom. Also affiliated with University of Amsterdam, Tinbergen Institute, CEPR and CESifo., Email: [email protected]

Publication date: 2009-10-01

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more