Geoadditive models for regional count data: an application to industrial location

We propose a geoadditive negative binomial model (Geo-NB-GAM) for regional count data that allows us to simultaneously address some important methodological issues, such as spatial clustering, nonlinearities, and overdispersion. This model is applied to the study of location determinants of inward greenfield investments that occurred during 2003-2007 in 249 European regions. After presenting the dataset and showing the presence of overdispersion and spatial clustering, we review the theoretical framework which motivates the choice of the location determinants included in the empirical model and we highlight some reasons why the relationship between some of the covariates and the dependent variable might be non linear. The subsequent section first describes the solutions proposed by previous literature to tackle spatial clustering, nonlinearities, and overdispersion and then presents the Geo-NB-GAM model. The empirical analysis shows the good performance of Geo-NB-GAM. Notably, the inclusion of a geoadditive component (a smooth spatial trend surface) permits us to control for spatial unobserved heterogeneity that induces spatial clustering. Allowing for nonlinearities reveals, in keeping with theoretical predictions, that the positive effect of agglomeration economies fades as the density of economic activities reaches some threshold value. However, no matter how dense the economic activity becomes, our results suggest that congestion costs never overcome positive agglomeration externalities.