Agglomeration and the location of foreign direct investment in Portugal

In urban economics, and more recently in the international economics litera ture, agglomeration has been offered as a principal determinant of new inve stment. Yet agglomeration has rarely been subject to precise statistical te sts. In this paper, the availability of detailed urban and regional data fo r Portugal allowed for a close study of the spatial choices for newly creat ed foreign-owned plants. It appears that agglomeration economies are decisi ve location factors. Service agglomeration has a notably strong effect, whi le industry-level localization economies and urbanization externalities are verifiable location determinants as well. Distance from the principal citi es is statistically significant, but there is no evidence that local labor costs matter. (C) 2000 Academic Press.