A joint spatial econometric model for regional FDI and output growth

Abstract This paper studies the joint dynamics of foreign direct investments (FDI) and output growth in European regions by using spatially augmented systems equations modeling framework that incorporates third‐region spillover effects. The is used to study dynamic impacts regional human capital endowments, which demonstrates importance explicitly accounting for an endogenous relationship. relationship highlighted a stylized projection exercise, where long‐run are pronounced Eastern Europe cities. Overall, ignoring economic performance FDI distorts implied transmission mechanism, utmost policy makers.