Revised and Extended Second Edition
Edited by Roberta Capello and Peter Nijkamp
Chapter 11: Foreign direct investments, global value chains and regional development
This chapter develops a framework for the analysis of foreign direct investment (FDI)-induced effects that accounts for the multifaceted manifestations of the phenomenon. Although the theoretical literature considers these effects as a-spatial in nature, most of them suffer from distance decay and, therefore, are able to exert their potential growth-enhancing effects only on spatially limited regions. This chapter focuses on this type of effects. In particular, after providing a taxonomy for them, it tries to answer two questions: whether FDI growth-enhancing effects take place in the domestic economy; and whether there are any necessary preconditions for these positive effects to materialise. Overall, the extant literature on FDI indicates that the occurrence of spatially bounded FDI spillovers strongly depends on factors such as co-location, spatial proximity and local embeddedness. These results are then integrated with the potential novelties brought into the debate by the increasing geographical fragmentation of the production processes. Contrary to the traditional literature on FDI, recent studies on global production networks indicate that the growth-enhancing effects of FDI no longer depend on embeddedness, but on openness and connectivity. However, this new approach to the assessment of FDI spillovers has much to accomplish in order to explain the mechanisms through which FDI spillovers occur.
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