Review of World Economics

, Volume 139, Issue 4, pp 583–600 | Cite as

Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation

  • Frank Barry
  • Holger GörgEmail author
  • Eric Strobl


Previous studies have shown that the localisation of firms can be an important factor in attracting new foreign direct investment into a host country. The authors distinguish between “efficiency agglomerations” which arise as firms increase their efficiency by locating close to each other, and “demonstration effects” whereby existing firms send signals to new investors as to the reliability and attractiveness of the host country. They try to disentangle these two effects by examining the location of US firms in Ireland. They find that both sources of agglomerations have been important determinants of US firm entry into Ireland. JEL no. F23


Foreign direct investment agglomerations demonstration effects 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Barrell, R., and N. Pain (1999). Domestic Institutions, Agglomerations and Foreign Direct Investment in Europe.European Economic Review 43 (4/6): 925–934.CrossRefGoogle Scholar
  2. Barry, F., and J. Bradley (1997). FDI and Trade: The Irish Host-Country Experience.Economic Journal 107 (November): 1798–1811.CrossRefGoogle Scholar
  3. Barry, F., and A. Hannan (1996). On Comparative and Absolute Advantage: FDI and the Sectoral and Spatial Effects of Market Integration. Working Paper 96/19. Centre for Economic Research, University College Dublin.Google Scholar
  4. Blonigen, B. A. (1997). Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment.American Economic Review 87 (3): 447–465.Google Scholar
  5. Branstetter, L. (2000). Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japan’s FDI in the United States. NBER Working Paper 8015. National Bureau of Economic Research, Cambridge, Mass.Google Scholar
  6. Braunerhjelm, P., and R. Svensson (1996). Host Country Characteristics and Agglomeration in Foreign Direct Investment.Applied Economics 28 (7): 833–840.CrossRefGoogle Scholar
  7. Braunerhjelm, P., and R. Svensson (1998). Agglomeration in the Geographical Location of Swedish MNFs. In P. Braunerhjelm and K. Ekholm (eds.),The Geography of Multinational Firms. Dordrecht: Kluwer Academic Publishers.CrossRefGoogle Scholar
  8. Buckley, P. J., and M. C. Casson (1998). Analyzing Foreign Market Entry Strategies: Extending the Internalization Approach.Journal of International Business Studies 29 (3): 539–562.CrossRefGoogle Scholar
  9. Coughlin, C. C., and E. Segev (2000). Location Determinants of New Foreign-Owned Manufacturing Plants.Journal of Regional Science 40 (2): 323–351.CrossRefGoogle Scholar
  10. Davis, S. J., and J. Haltiwanger (1992). Gross Job Creation, Gross Job Destruction and Employment Reallocation.Quarterly Journal of Economics 107 (3): 819–864.CrossRefGoogle Scholar
  11. DeCoster, G. P., and W. C. Strange (1993). Spurious Agglomeration.Journal of Urban Economics 33 (3): 273–304.CrossRefGoogle Scholar
  12. Driffield, N., and M. Munday (2000). Industrial Performance, Agglomeration, and Foreign Manufacturing Investment in the UK.Journal of International Business Studies 31 (1): 21–37.CrossRefGoogle Scholar
  13. Girma, S. (2002). The Process of European Integration and the Determinants of Entry by Non-EU Multinationals in UK Manufacturing.The Manchester School 70 (3): 315–335.CrossRefGoogle Scholar
  14. Görg, H., and E. Strobl (2002). Multinational Companies and Indigenous Development: An Empirical Analysis.European Economic Review 46 (7): 1305–1322.CrossRefGoogle Scholar
  15. Görg, H., and E. Strobl (2003). Multinational Companies, Technology Spillovers, and Plant Survival.Scandinavian Journal of Economics, forthcoming.Google Scholar
  16. Head, K., J. Ries, and D. Swenson (1995). Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investments in the United States.Journal of International Economics 38 (May): 223–247.CrossRefGoogle Scholar
  17. Jones, R. W. (1980). Comparative and Absolute Advantage.Schweizerische Zeitschrift für Volkswirtschaft und Statistik 3 (2): 235–260.Google Scholar
  18. Kearns, A., and F. Ruane (2001). The Tangible Contribution of R&D Spending by Foreign-Owned Plants to a Host Region: A Plant Level Study of the Irish Manufacturing Sector (1980–1996).Research Policy 30 (2): 227–244.CrossRefGoogle Scholar
  19. Krugman, P. R. (1997). Good News from Ireland: A Geographical Perspective. In A. W. Gray (ed.),International Perspectives on the Irish Economy. Dublin: Indecon.Google Scholar
  20. Krugman, P. R., and A. J. Venables (1995). Globalisation and the Inequality of Nations.Quarterly Journal of Economics 110 (4): 857–880.CrossRefGoogle Scholar
  21. Krugman, P. R., and A. J. Venables (1996). Integration, Specialization, and Adjustment.European Economic Review 40 (3): 959–967.CrossRefGoogle Scholar
  22. Marshall, A. (1920).Principles of Economics. London: Macmillan.Google Scholar
  23. Milner, C., and E. Pentecost (1996). Locational Advantage and US Foreign Direct Investment in UK Manufacturing.Applied Economics 28 (5): 605–615.CrossRefGoogle Scholar
  24. O’Malley, E. (1995).An Analysis of Secondary Employment Associated with Manufacturing Industry. Dublin: Economic and Social Research Institute.Google Scholar
  25. Ottaviano, G. I. P., and D. Puga (1998). Agglomeration in the Global Economy: A Survey of the “New Economic Geography”.World Economy 21 (6): 707–731.CrossRefGoogle Scholar
  26. Pavelin, S. (2000). The Geographical Diversification of Leading Firms in the EU. Working Paper 00/15. Centre for Economic Research, University College Dublin.Google Scholar
  27. Ruane, F., and A. Ugur (2002). Foreign Direct Investment and Productivity Spillovers in Irish Manufacturing Industry: Evidence from Firm Level Panel Data. Trinity Economic Papers 02/06. Department of Economics, Trinity College Dublin.Google Scholar
  28. Wheeler, D., and A. Mody (1992). International Investment Location Decisions: The Case of U.S. Firms.Journal of International Economics 33 (August): 57–76.CrossRefGoogle Scholar
  29. White, P. (2000). The Muscles of the Celtic Tiger: The IDA’s Winning Sectors. In R. MacSharry and P. A. White (eds.),The Making of the Celtic Tiger: The Inside Story of Ireland’s Boom Economy. Cork: Mercier Press.Google Scholar

Copyright information

© Kiel Institute for World Economics 2003

Authors and Affiliations

  1. 1.University College DublinIreland
  2. 2.University of Nottingham and DIW BerlinGermany
  3. 3.Catholic University of LeuvenBelgium

Personalised recommendations