Infrastructure and the Location of Foreign Direct Investment A Regional Analysis

In the 1990’s, Argentina became a top destination for FDI to developing countries. The geographical distribution of FDI inflows was, however, highly uneven. In parallel, the spatial allocation of public infrastructure greatly mirrored these regional disparities. What were the determinants of FDI location? What was the role of public infrastructure? This paper attempts to answer these questions using spatial econometric techniques for a panel of regional and FDI data of the Argentine provinces. Results suggest that space matters for FDI location, indicating some competition effects in FDI inflows between neighbouring provinces. Paved roads seem also matter but other proxies of infrastructure do not seem to be that important. According to our results, a 10% increase in paved roads per capita augments FDI between 17% and 33% in the average host regional economy. Extending the network of paved roads in neighbouring regions would increase FDI between 12% and 14% but results are not robust.