Juan Alvarez Vilanova (p)

Agelos Delis

Economic uncertainty is known to deter Foreign Direct Investment (FDI), and the Brexit negotiation period was no exception. Yet, regional institutions, particularly Investment Promotion Agencies (IPAs), are increasingly leveraging ecosystem-building strategies to embed multinational enterprises (MNEs) in priority sectors, potentially insulating FDI from adverse shocks. This paper investigates whether such strategies provided resilience during Brexit uncertainty, exploring a less-examined channel through which IPAs can grow FDI: not just by attracting new investment, but by strengthening embeddedness of established investors. Using a unique dataset on UK IPAs’ sector-specific FDI strategies, I assess the impact of pre-2015 sector-targeting efforts on FDI outcomes during the 2016–2019 Brexit negotiation period. My findings reveal that pre-Brexit IPA sector-targeting was associated with a 13.9% increase in repeat investment value and a 19.3% rise in job creation within Knowledge-Intensive Services (KIS) sectors. However, no such effects were observed for manufacturing, likely due to the acute trade-related uncertainty in those industries. Moreover, and contrary to previous research into IPA impacts on FDI, no effects were observed for new FDI – that is, investments by MNEs that are new to the region – either in KIS sectors or manufacturing. This likely reflects how, in times of uncertainty, the ecosystem-embedding activities of IPAs – which by definition focus more on established MNE investors – may prove more significant than their role in supporting new MNE investors to enter a regional market. In the current global context of continued economic uncertainty and turbulence, these findings are particularly informative for policy-makers seeking to protect vital regional FDI.

Agelos Delis (p), Lin Zhang

Shin-Kun Peng

Firms that make similar decisions should possess common characteristics and consequently experience similar outcomes. We adopt a similar line of thinking in our attempt to understand whether the co-occurrence of imports by UK regions provides valuable information for explaining regional economic performance. Specifically, such an analysis could map regions’ coordinated import activities and their correlation with regional export patterns. This offers insights into addressing regional disparities in the UK and enabling firms in different regions to enhance their resilience in the face of recent crises, such as the pandemic and energy crisis. This issue has garnered renewed attention in the past decade, and our work will contribute to the ongoing debate on policy responses, such as levelling up initiatives (McCann and Ortega-Argilés, 2021; Fransham et al., 2023).

Drawing inspiration from computer science (Aaron et al., 2018) and finance (Lu et al., 2023; Hirschey, 2021), we construct spatial measures of firm import co-occurrences for the UK.
Using such measures allow us to capture both comparative advantage (relative international competitiveness) and agglomeration. It is well-established that both of these factors have a positive effect on productivity. Alcala and Ciccone (2004) provide evidence for the former, while Martin and Ottaviano (2001) discuss the latter. In other words, firms within regions that share similar patterns in terms of the types of inputs they import internationally are likely to experience similar trajectories in their ability to compete globally and, consequently, in their levels of productivity.

We use regional export and import data from HMRC’s Regional Trade in Goods Statistics (RTS) for the period 2013 to 2024. The data are available at the International Territorial Level 1 (ITL1) basis. This means that there are regional trade data for the nine English regions and the three other nations of the UK. The frequency of the data is quarterly and annually, and the most disaggregated version is at a 2-digit SITC classification.

Our estimation approach uses a LASSO (Least Absolute Shrinkage and Selection Operator) estimator. LASSO allows for dimensionality, a large number of independent variables and the identification of the ones that are truly relevant. We find interesting patterns on the goods and country of origin dimensions that explain the variation of regional exports in the UK over time.

Ching-Mu Chen, Shih-Yang Lin, Shin-Kun Peng (p), Wen-Jen Tsay

Juan Alvarez Vilanova

This paper introduces a novel estimator for the Poisson model with dual binary endogenous explanatory variables, addressing the need to quantify the effects of preferential economic integration agreements. We develop a two-stage pseudo-maximum likelihood estimator and derive exact analytical gradient matrices as well as Hessian matrices to improve computational speed and eliminate approximation errors substantially. Applying our approach to trade data, we find that preferential trade agreements positively impact bilateral trade flows, while bilateral investment treaties have a negative effect. Additionally, the positive interaction term between these two treaties suggests that preferential trade agreements promote horizontal foreign direct investment.