Abstract.
This paper tests one of the fundamental assumptions of regional policy makers over the last 20 years. Western governments, in seeking to attract internationally mobile capital have spent significant sums of public money on subsidies and grants. This is justified on the basis that the social returns to FDI are significantly greater than the private returns, due to productivity or technology spillovers from inward investors to domestic industry. However, this paper generates some estimates of these spillovers for both assisted areas and non-assisted areas in the UK, and questions the size of these social returns, arguing that productivity spillovers do not occur in regions where significant inward investment incentives are available.
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Thanks are due to Holger Gorg, Sourafel Girma, Jim Love, Max Munday, Nigel Pain, Jim Taylor, Colin Wern and to seminar participants in Cardiff, Aston, Lancaster and London for comments on an earlier version of this paper.
Received: June 2001/Accepted: May 2003