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Importance of Geographic Space and Location
Foreign investors much like domestic firms are subject to different locational factors. In her
study of investment in China Cheng demonstrates that Japanese investors, once they decide on
expanding in China due to cheap inputs, they are usually attracted to a province that has more
favorable economic and business environment, such as skilled labor, business friendly policies,
more solid infrastructure and higher quality of life. She suggests that: “conventional economic
factors, like market potential, wages and land cost, only impose limited, if not negligible, impacts
on Japanese investors’ location selection in China” (Cheng, 2007, p. 69). Cheng is skeptical
about the Chinese government’s ability to attract more foreign investment to the central and
western regions because of such crucial spatial considerations as the lack of agglomeration
economies, the non-existence of industrial clusters in the interior, and a less favorable business
climate.
Several studies confirm that promotional efforts and agglomeration economies, including both
urbanization and localization economies, play an important role in attracting foreign investment.
Kim et al use a conditional logit regression model and their findings suggest that for smaller
states the lack of agglomeration economies and locational disadvantages can be partly offset by
foreign investment attraction programs (Kim et al, 2007).
The importance of foreign investment to the country’s economy has been finally recognized by
the U.S. federal government as well, as it created the ‘Invest in America’ initiative within the
U.S. Department of Commerce in March 2007. According to the federal government estimates
foreign subsidiaries in the U.S. provided more than 5 million jobs for Americans. Many state
governments also try to market themselves to foreign investors. For example the state of Georgia
has been reported in the news to spend about $6 million last year to attract foreign investment.
Some of the Southern states have been very successful in bringing in foreign auto manufacturers.
The State of California has a number of programs through the California Business Investment
Services (CalBIS) supporting foreign investment, which include assistance with the site selection
and logistics, business consulting, networking with other economic actors, and providing essential
economic and social data. CalBIS claims that they: “assist firms with expanding their existing
operations and help them to compete more effectively and profitably in domestic and
international markets. CalBIS provides technical assistance services to help businesses grow and
prosper” (Cal. Lab., 2007). It is not clear how much CalBIS knows about firm location and
especially economic and geographic spaces of those industries and firms that it tries to attract to
California. Many regional and local governments also attempt to encourage foreign investment
and they usually rely on various incentive packages, which are offered to potential investors
(Talley-Seijn, 2004).
The main problem with traditional approaches and business attraction programs targeting foreign
investment is the lack of any serious consideration of interdependence of geographic and
economic spaces and almost no attention to economic spaces of different foreign firms singled
out by public agencies and their respective industries. All these efforts will most likely have a
limited success if they fail to incorporate the most important relationships between different
economic agents and shifting comparative and competitive advantages within and between
geographic and economic spaces.
REGIONAL DEVELOPMENT EFFORTS
Local and regional governments have traditionally been the only government agencies that relied
heavily on geographic space in their development strategies. At the same time, in spite of the
main focus on geographic space those governments often lack a clear understanding of their
region’s potential and especially future opportunities. Yet, if their knowledge of the geographic
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