Agglomeration economies and the location of foreign direct investment: Empirical evidence from Romania

Agglomeration economies and the location of foreign direct investment: empirical evidence from Romania, Regional Studies. The large inflow of foreign direct investment into Romania, after the revolution in 1989, is exploited to study the determinants of foreign direct investment location in transition economies. Using a conditional logit set-up and choice-specific fixed-effects, it is found that external economies from service agglomeration are the main determinant of foreign direct investment location. An increase in service employment density by 10.0% makes the average Romanian county 11.9% more likely to attract a foreign investor. Industry-specific foreign and domestic agglomeration economies and labour conflicts also impact foreign direct investment location. A comparison with findings of other studies suggests that service agglomeration economies may be geographically quite localized