This paper considers financial development as one of the key conditions determining FDI spillovers in EU regions, introducing new evidence on the economic geography of finance and its contribution to growth and the absorptive capacity of regions. It posits that the notion of absorptive capacity at the regional level could emphasize the role of local factors moderating the impact of FDI on regional growth. By using firm level data aggregated to the regional level and employing a newly constructed dataset, the paper shows that FDI can be considered an important ingredient to boost regional growth. Using both panel fixed effects and Generalized Methods of Moments (GMM), the paper supports the hypothesis that FDI spillovers materialize when the region has well-developed financial markets system to absorb FDI externalities. By bridging recent interest in economic geographies of finance and longer standing literatures on international business and economic geography, our analysis aims to highlight the spatial nature of “financialisation” and its significance for facilitating FDI spillovers.
Petrakou M., Bruno R., and Phelps N., (2021) FDI spillovers and channels of transmission in the EU: The role of regional financial markets, Discussion Paper Series, DPRD - U.Th., 27(2): 23-46