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| 1 |
ID:
083250
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2008.
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| Summary/Abstract |
This article analyzes negative externalities that policymakers in one region or group may impose upon the citizens of neighboring regions or groups. These externalities may be material, but they may also be psychological (in the form of envy). The latter form of externality may arise from the production of `conspicuous' public goods. As a result, decentralized provision of conspicuous public goods may be too high. Potentially, a centralized legislature may internalize negative externalities. However, in a model with strategic delegation, we argue that the median voter in each jurisdiction may anticipate a reduction in local public goods supply and delegate to a policymaker who cares more for public goods than she does herself. This last effect mitigates the expected benefits of policy centralization. The authors' theory is then applied to the setting of civil conflict, where they discuss electoral outcomes in Northern Ireland and Yugoslavia before and after significant institutional changes that affected the degree of centralization. These case studies provide support for the authors' theoretical predictions.
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| 2 |
ID:
102716
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2011.
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| Summary/Abstract |
We empirically investigate the factors that drive the uneven regional distribution of foreign direct investment (FDI) across Chinese provinces from 1995 to 2006. We first perform a factor analysis to summarize information embodied in around 40 variables and derive four FDI determinants: 'institutional quality', 'labour costs', 'market size', and 'geography'. Applying these estimated factors, we then employ instrumental variable (IV) estimation to account for endogeneity. In line with theoretical predictions, we find that foreign firms invest in provinces with good institutions, low labour costs, and large market size. The Arellano-Bond dynamic panel generalised method of moments (GMM) results show strong agglomeration effects that multinationals tend to invest in provinces which attract other foreign firms, consistent with the economic geography literature. Several robustness tests indicate that low labour costs combined with improvements in institutions are the key for attracting FDI in China.
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