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This article investigates the determinants of FDI at sub-national level. It recognizes that MNEsModified Letter Turned Comma foreign activities are organized in networks of strongly interconnected, but geographically dispersed affiliates. This implies a different approach to the analysis of the determinants of FDI, which should focus on contextual factors able to stimulate economic relations at distance. Methodologically, we use a gravity-type model and different regression techniques with a new dataset on networks of FDI involving German and Italian regions. We find evidence that technologically proximate regions sharing the same industry profile are more likely to experience positive and large networks driven by MNEs, with weaker evidence related to cultural and institutional proximities, which cannot compensate the negative impact of geographic distance. The distinctive contribution of this paper is to emphasize that local policies to attract FDI are more likely to succeed if addressed to similar regions.

A large academic consensus exists on the idea that successful innovative processes are geographically bounded within regions. Nevertheless, the ability of regions to capture and re-use external knowledge is also regarded as a fundamental element to sustain and refine the local profile of specialisation and competitiveness. The present article combines these views to investigate the sources of the regional innovation process, by analysing data on Italian regions over the period 2007-2012. We define regional external networks based on all the foreign subsidiaries of local multinational enterprises identifiable as global ultimate owners. Our main results suggest that both the internal specialisation and the outward networks can generate indigenous innovation, but the role of the networks varies substantially according to its density, its degree of complementarity with the specialisation profile, its geographical spread and the specific location of the foreign subsidiaries. Our results, then, support a view of the regional innovation as an interactive process whereby valuable knowledge resources are not only generated within the reach of the local economy, but they are also integrated with external inputs. This contrasts with recent anti-globalisation views according to which the increase in the foreign operations of national companies impoverishes the local economy.