Regional governance and foreign direct investment: the dynamics of institutional change in Wales and North East England

In recent years, something of a consensus has emerged regarding the need to build local institutional capacity in order to foster and support 'embedde d' and sustainable forms of local economic development. This paper focuses on efforts to build local institutional capacity in two British regions - W ales and North East England - with a similar industrial past but dissimilar institutional structures. Addressing recent debates on the 'new regionalis m' in economic geography, particularly in terms of the perceived neglect of exogenous forces and the failure to assess the scope for regional agencies to actually foster 'embeddedness', the paper examines the activities of su b-national state agencies in relation to recent efforts to attract and 'emb ed' mobile investment. We explore the process of local capacity-building ac cording to four key themes identified from a review of recent work on regio nal governance and economic development. These refer to the role of the cen tral state in structuring economic governance; the organisation of interins titutional relations; questions of regional coherence and identity in the f ace of pressures of inter-regional competition and sub-regional fragmentati on; and the place of inward investment within broader strategic choices reg arding economic development. In conclusion, we suggest that regional agenci es capacity to foster embeddedness is limited in the absence of stronger fo rms of regulation over FDI flows at national and international levels. (C) 2001 Elsevier Science Ltd. All rights reserved.