Working Paper: NBER ID: w8862
Authors: Bruce A. Blonigen; Van Kolpin
Abstract: The active 'courting' of firms by municipalities, regions, and even nations has a long-standing history and the competition for firm location through a wide variety of incentives seems to have escalated to new heights in recent years. We develop a model that explores technology development by firms that face regional competition for their investment and examine the endogenous determination of regions' policies, firm technology, and agglomeration externalities. In particular, we find that regional competition leads firms to inefficiently distort their research and development efforts in hopes of improving their standing in the competition amongst regions for their investment. This loss in efficiency is aggravated by the agglomeration externalities that are inherently present in many industries. We offer several case studies that provide evidence consistent with our theoretical conclusions.
Keywords: No keywords provided
JEL Codes: H71; L23; F23; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regional competition (R12) | Firm R&D efforts (O39) |
| Firm R&D efforts (O39) | Technology choices (O33) |
| Technology choices (O33) | Agglomeration externalities (R11) |
| Regional competition (R12) | Technology choices (O33) |
| Regional competition (R12) | Agglomeration externalities (R11) |