Agglomeration, regional grants and firm location

Agglomeration, regional grants and firm location
Document type
Working Paper
Devereux, Michael; Griffith, Rachel; Simpson, Helen
Institute for Fiscal Studies
Date of publication
1 December 2003
The Institute for Fiscal Studies Working Papers
Trends: economic, social and technology trends affecting business
Business and management
Material type

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This paper examines whether discretionary government grants influence the location of new plants, and how effective these incentives are in the presence of agglomeration and urbanisation externalities. The paper finds evidence that regional industrial structure affects the location of new entrants. Firms in more agglomerated industries locate new plants near to others in the same industry. Firms are also attracted to industrially diversified locations. Foreign multinationals locate new plants near to other foreign-owned plants in the same industry. Fiscal incentives in the form of grants are found to have some effect in attracting plants to specific geographic areas eligible for such aid.

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