Helen Simpson (Institute for Fiscal Studies), Michael P. Devereux, Rachel Griffith

Regional grants, agglomeration and firm location

We examine whether discretionary government grants influence the location of new plants, and how effective these incentives are in the presence of agglomeration and urbanisation externalities. We find evidence that regional industrial structure affects the location of new entrants - firms locate new plants near to others in the same industry, and are also attracted to locations with a diversified industrial structure. 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 be effective in attracting plants to specific geographic areas that are eligible for such aid, but as the extent of industry agglomeration increases the effectiveness of the fiscal incentive decreases.

Keywords: Firm location, agglomeration, selective assistance, regional policy

JEL Codes: R12, R3

Session: 4d   Room 2003   Category: Regional

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