Agglomeration, regional grants and firm location

Published on 1 March 2004

This Working Paper is an update of Firm location decisions, regional grants and agglomeration externalities

We examine whether discretionary government grants influence the location of new plants, and how effective these incentives are in the presence of agglomeration and urbanisation externalities.

We examine whether discretionary government grants influence the location of new plants, and how effective these incentives are in the presence of agglomeration and urbanisation externalities. We find evidence that regional industrial structure affects the location of new entrants. Firms in more agglomerated industries locate new plants near to others in the same industry. Firms are also attracted to industrially diversified locations. Foreign multinationals locate new plants near to other foreign-owned plants in the same industry. Fiscal incentives in the form of grants are found to have some effect in attracting plants to specific geographic areas eligible for such aid.