The essays on foreign investments and economic geography: Empirical investigation of Czech manufacturing sector

Jana Valachyová

Date of defense: January 24, 2006

Dissertation Committee:
Evžen Kočenda - CERGE-EI, chair
Alena Zemplinerová - CERGE-EI
Jan Hanousek - CERGE-EI
František Turnovec - CERGE-EI

Abstract:

 

The thesis empirically investigates the economic geography of the Czech manufacturing sector paying special attention to FDI.

The first essay analyzes the locations’ attractiveness to foreign investors. The measure of location attractiveness is based on comparing the current geographic distribution of foreign-owned manufacturing plants to the initial distribution of manufacturing plants. The model relating location attractiveness to geographic and economic indicators is first estimated by the random effect technique accounting for the unobserved location specific effect and then by the spatial econometric techniques. The results imply that the inflow of foreign capital into the Czech manufacturing sector has more or less followed the initial geographical distribution of manufacturing activity within the country, with excess capital accumulation in locations bordering the EU(15) market and locations with well developed road infrastructure.

The second essay examines how important agglomeration economies were for the location decision of foreign investors entering the Czech manufacturing sector during the period 1994-2001 using the district level conditional logit model controlling for choice-specific fixed effects and factor endowment effects. I find support for the hypothesis that the location choices of foreign investors were influenced by the presence of previous foreign investors in the same industrial branch. I also find evidence on the importance of EU(15) border effects and infrastructure endowment, in particular, for greenfield investments. I conclude that it is difficult for the Czech government to effectively overcome unfavorable endowments of the districts by providing incentives.

The third essay looks at the geographic concentration of the manufacturing industries within the Czech Republic in the period 1993-2000. While examining the evolution of the concentration index, I distinguish manufacturing branches according to their input factor composition and to the degree of technological intensity of production process. The findings are in line with prior expectation: i) a higher degree of geographic concentration is confirmed for the industries using human capital more intensively, ii) the traditional industrial sectors are the least geographically concentrated while the sectors with higher technological dynamism have a greater tendency for geographical concentration.