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New research shows a positive link between Outward FDI and domestic employment in USA local labor markets where investing companies are located. Job creation at home and abroad are complementary, especially in less developed regions. Investment Promotion Agencies should facilitate active internationalization of domestic firms while reinforcing their local linkages.

Global connectivity and knowledge circulation are necessary for innovation to thrive. However, in response to external shocks, economies tend to reduce their external exposure in order to minimize risk and focus their resources on internal markets. Uncoordinated and often competitive responses to economic shocks are in sharp contrast with the need for innovative solutions for recovery. This paper explores this paradox by looking at regional innovation in the USA in the aftermath of the Great Recession. The paper compares Foreign Direct Investment (FDI) with similar domestic, inter-state investment in order to assess whether a ‘local innovation premium’ is associated with global connectivity vis-à-vis purely domestic linkages. The results show that what matters for post-crisis innovation is active internationalization in the form of outward FDI. Truly global outward connectivity matters the most: investing abroad offers the highest short-term returns vis-à-vis domestic inter-regional investments. FDI connectivity with highly innovative frontier systems offers the highest returns when innovation is needed to respond to the crisis. However, low-innovation regions can still profit (in the short-run) from connectivity with other relatively less technologically advanced regions, benefitting from stronger congruence in terms of technological capabilities. These results send a warning message on the potentially adverse consequences of current policies in most advanced economies that seek to manage foreign activities of domestic companies in attempts to foster domestic security and recovery.

Economic geographers and regional economists have traditionally analysed the mechanisms driving learning processes and the diffusion of knowledge among local economic actors. During the past decade, the concept of «related variety» has been frequently used to denote an agglomeration force able to explain knowledge-related advantages for firms and geographically bounded productive systems, and which arises from the heterogeneity of local industries. Besides this concept, more recent studies have emphasised the role of firm heterogeneity as an alternative – but not substitute – mecha-nism for knowledge creation and diffusion. This paper discusses the factors driving the emergence of knowledge spillovers within agglomerative spaces, and conducts a critical comparison between the concepts of industrial related variety and firm heterogeneity as two potential sources of local knowledge externalities, and, thus, of local economic development.

Supplemental material, sj-pdf-1-usj-10.1177_0042098021998927 for Does urban concentration matter for changes in country economic performance? by Roberto Ganau and Andrés Rodríguez-Pose in Urban Studies

This paper analyzes the growth pathways of 1,321 regions in the European Union from 2003 to 2017. The aim is to inform integrated territorial investments and other economic development initiatives in lagging regions. Using the definition of lagging regions from the European Commission’s Catching Up Initiative, more than two-thirds of the European Union member states have lagging regions when defined at the Nomenclature of Territorial Units for Statistics-3 scale. These small lagging regions are often hidden within larger and more prosperous regions. The paper considers the roles of industrial structure, innovation, and inward foreign direct investment as growth-enhancing factors. The findings indicate that the growth dynamics in low-income regions are different from those in regions in other income groups: there is no overall pattern in the contribution of industry to growth but there is a strong association between foreign direct investment and growth. Among low-growth lagging regions -- the 171 small regions in the European Union with gross domestic product per capita less than 90 percent of the European Union average, and stagnant or negative growth performance -- growth is correlated with construction and innovation. There are also differences in the growth pathways of rural and non-rural regions: growth is associated with moving away from agriculture in rural regions, and it is associated with construction and innovation in non-rural regions. The results imply that a finer geographic scale can be important in policy making and programming of Cohesion Policy Funds, to cater to different needs and opportunities at the scale of Nomenclature of Territorial Units for Statistics-3 regions.

This paper examines the relationship between credit constraints - proxied by the investment-to-cash flow sensitivity – and firm-level economic performance - defined in terms of labor productivity – during the period 2009-2016, using a sample of 22,380 manufacturing firms from 11 European countries. It also assesses how regional institutional quality affects productivity at the level of the firm both directly and indirectly. The empirical results highlight that credit rationing is rife and represents a serious barrier for improvements in firm-level productivity and that this effect is far greater for micro and small than for larger firms. Moreover, high-quality regional institutions foster productivity and help mitigate the negative credit constraints-labor productivity relationship that limits the economic performance of European firms. Dealing with the European productivity conundrum thus requires greater attention to existing credit constraints for micro and small firms, although in many areas of Europe access to credit will become more effective if institutional quality is improved.