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SERC/Urban and Spatial Programme Discussion Paper
The Dynamics of FDI Location: A Markov Analysis for British Regions
Jonathan Jones and Colin Wren
November 2009
Paper No' SERCDP0035:
Full Paper (pdf)

JEL Classification: O12; L20; R58

Tags: foreign direct investment; location; transition matrices; agglomeration; regional policy

The paper uses the framework of Markov chains to examine convergence in the location of inward foreign direct investment across the regions of Great Britain over 1985-2005. An analysis is undertaken by industry group that disaggregates manufacturing and services. It finds convergence in regional FDI shares, both overall and by industry, which supports agglomeration. As explanations, a weakening of regional policy has led manufacturing FDI to spread-out from ‘north’ to ‘south’, but in services there is a shift in FDI location within the ‘south’ from core to contiguous regions, suggesting diseconomies at the core. The paper finds different spatial processes and draws implications for regional policy.