STATA programme is needed for the econometric models. -Data are available but modification is needed. -Panel database including

Typically, the project covers all aspects of doing empirical research with real world

data including finding additional literature for your theoretical framework,

constructing a dataset, conducting statistical analyses, and eventually writing the

research report. Note that you start with one main hypothesis, but that you can

come up with several sub-hypotheses.

HYPOTHESES:

Hypothesis 1 : The presence of a port in a region affects positively the number of

inward FDI.

Hypothesis 2 : The size of a port affects positively the number of inward FDI.

Hypothesis 3 : The presence of a port in a region and the presence of good

infrastructure affects positively the number of inward FDI.

Hypothesis 4 : Different types of FDI and if there is a difference between port and

non-port regions. (for example manufacturing fdi versus services fdi, or Resource

seeking vs market seeking etc, )

-All analyses you have to conduct should be carried out in Stata.

-You can either estimate a fixed effects/random effects/Pooled OLS model or count

data model (Poisson, negative binomial, zero-inflated).

This study investigates the effect of the presence of a port on the attractiveness of inward FDI in the region. Port regions will be defined due its geographical location

and categorized by size. Afterwards, using a negative binomial regression model,

several related hypotheses will be tested. The results show a positive significant

relationship between a port region and the inward FDI.

The Effect of a Port on the inward FDI in a region

2

Table of Content

1. INTRODUCTION………………………………………………………………………………………………………….3

2. THEORETICAL BACKGROUND …………………………………………………………………………………..5 2.1 Port regions and FDI …………………………………………………………………………………………………………. 5 2.2 Positive effects of port on the city ………………………………………………………………………………………… 7 2.3 Business sectors and proximity to port …………………………………………………………………………………. 8

3. THE HYPOTHESES …………………………………………………………………………………………………… 10

4. DATA & METHODOLOGY ………………………………………………………………………………………… 14 4.1 Data ……………………………………………………………………………………………………………………………….. 14 4.2 Ports and urban attractiveness ………………………………………………………………………………………….. 16 4.3 Sectoral Analysis ……………………………………………………………………………………………………………… 16 4.4 Effect of Port size …………………………………………………………………………………………………………….. 17 4.5 Control Variables …………………………………………………………………………………………………………….. 18 4.6 Estimation Strategy ………………………………………………………………………………………………………….. 20

5. RESULTS ………………………………………………………………………………………………………………….. 21

6. DISCUSSION & CONCLUSION …………………………………………………………………………………… 26

REFERENCES ………………………………………………………………………………………………………………. 30

APPENDIX ……………………………………………………………………………………………………………………. 32

3

1. INTRODUCTION

In the ceaseless game of dominance, multinational companies (MNCs) constantly pursue

competitive gains and advantages in order to secure sustainability. In a fast changing and

demanding global community, firms aim to expand beyond the boarder of their own country,

investing in different geographical areas around the globe, a strategy commonly refer to as

foreign direct investment (FDI). As simple as this may sound, the process of identifying

opportunities abroad is complex and usually involve businesses to analyze different factors

before committing to a specific location (Dunning J. H., 2001) (Porter, 2000). For businesses

interested in investing in European regions, ports could be of pivotal importance. Ports serve as

vital economic gateways as 74% of goods imported in or exported from Europe go by sea.1

European ports are not considered a homogenous set of ports (Notteboom, 2010) not only

because of the varied types of commodity handled but also for reasons related to connectivity

with various hinterlands and different location qualities. With many different ports within a

relatively small continent (Europe), competition to draw FDI becomes fierce among regions.

Another interesting aspect of the European region has to do with the formation of the European

Union. One of main purposes for forming the Union was to facilitate investments and potentially

increase wealth across the Union. The free movement of capital, goods and persons within the

Union as well as no trade barriers and tariffs within the E.U in theory make FDI very appealing

to those firms looking for opportunities abroad. In their study, Bevan & Estrin analyze the

determinants of FDI in European economies and found that “FDI is positively related to both

1 https://ec.europa.eu/transport/modes/maritime/ports/ports_en

4

source and host country GDP and related inversely to the distance between countries and to unit

labor costs” (Bevan & Estrin, 2004). An example of this could be a German firm looking for

opportunities to reduce labor costs in the Eastern part of Europe2. From previous research, we

know that many parts of Europe draw substantial amount of FDI in both services and

manufacturing sectors, the latter sector being explored more often especially in Eastern regions

(Disdier & Mayer, 2004). Furthermore, firms interested in investing in the European regions in

general do not seem to discriminate on the determinants of FDI before committing to a specific

location. This means that market size and agglomeration effect are considered equally important

for all EU regions (Disdier & Mayer, 2004). Disdier and Mayer also mentions that the

competition for FDI is not across regions (West vs East for example) but within the regions itself

(East vs East countries and West vs West countries). An explanation for this might be the

economic characteristics of the region drawing similar FDI interest within these areas.

The economic attractiveness as well as the geographical composition of European regions along

with the presence of many ports within this specific area makes it very interesting for economist

to research. Our research question is therefore if the presence of a port plays an active role in

urban competiveness and the attractiveness of inward FDI? The method used to answer this

question is the so-called “negative binomial model”; a model which is very suiting in order to

control for overdispersion in our data.

This paper continues as follows: In Section 2 we provide the reader with the necessary theory to

understand the dynamics of ports and FDI within the European region as well as our motives for

formalizing the different hypotheses within this paper. Section 3 introduces the composition of

2Data suggests that income in Germany is higher than in for example Bulgaria creating possibly certain advantages.

See:http://databank.worldbank.org/data/Views/Reports/ReportWidgetCustom.aspx?Report_Name=CountryProfile&

Id=b450fd57&tbar=y&dd=y&inf=n&zm=n&country=DEU and

http://databank.worldbank.org/data/Views/Reports/ReportWidgetCustom.aspx?Report_Name=CountryProfile&Id=b

450fd57&tbar=y&dd=y&inf=n&zm=n&country=BGR

5

our dataset, reasons for our choice of regression models and estimation strategy. Section 4 is

reserved for the empirical analysis and results of the main and sub hypotheses. Finally, in

Section 5 we discuss some of the limitations of this paper and conclude accordingly.

2. THEORETICAL BACKGROUND

2.1 Port regions and FDI

There are many definitions of what a port is but for simplicity we will use the definition of

Stopford (2009:81) a port is “a geographical area where ships are brought alongside land to load

and discharge cargo – usually a sheltered deep-water area such as a bay or river mouth”

(Stopford, 2009) (Nijdam & van der Horst, 2018). From this we can already get a “feel” that

ports function as node in transport chains and are important for economic activities involving

cargo and ship handling (Nijdam & van der Horst, 2018). Ports generally are an economic

catalyst for surrounding cities in the region, facilitating the integration of markets and the

agglomeration of services that generate economic benefits and socioeconomic welfare (Song &

van Geenhuizen, 2014) (Zhao, Xu, Wall, & Stavropoulos, 2017). The following paths in spatial

distribution show changes in the economic relationship between ports and port cities. Port cities

usually benefit from the port’s economic activities, by needing to be near the port. An example

of this is the lower transaction costs provided by ports to port related business activities.

Urban spaces near ports also provide ports with advantages that cannot be easily accessed

outside of urban agglomerations, such as labor pools and infrastructure, in this case the city

provides the port the human capital to efficiently run its labor and provide for roads to reach the

hinterland and vice versa (Hall & Jacobs, 2012). Port-related industries are attracted by such

environments, which allows ports and port cities have a relationship with one another and

economically benefit off each other (Zhao, Xu, Wall, & Stavropoulos, 2017). Because the

6

maritime transport network covers about 90% of world trade (Ducruet, Rozenblat, & Zaidi,

2010), it also has an effect on the global economy. Port and city networks become related to each

other during this process. Jacobs et al. (2010) stated that port-related advanced producer services

activities predominantly follow the overall global city trends, where some port cities have an

advantage over others because they act as hubs in global (commodity) flows on top of acting as

centers of advanced services related to shipping and port activities. But why is one urban port

area more competitive and/or attractive than another? First we need to understand the concept of

urban competitiveness. Kostiainen (2002) states that ‘the ability to attract flows of information,

technology, capital, culture, people, and organization is the key concept of urban

competitiveness (Kostiainen, 2002)’. Urban competitiveness can be measured by the capacity of

cities to attract investment and to promote development (Sáez & Periáñez, 2015). It is important

to note that there are two different types of FDI’s related to ports; inward FDI and outward FDI,

this is in our interest to analyze because inward and outward investment should be separated

from each other due to the different requirements of the involved parties making the investments

(Dooms, Lugt, & Langen, 2013) (Kolstad & Wiig, 2012).

Inward investments give the opportunity to attract international private multinationals, where the

host country can grow investments and provide for local economic growth. Outward investments

aim for outward activities (abroad), and look for exploiting new business opportunities and

relationships (Dooms, Lugt, & Langen, 2013). The port’s (authority) outward

internationalization strategies are to sell the port worldwide (customer seeking principle), create

value for their domestic customers and/or maximize profits through involvement in exploiting

market opportunity abroad (Dooms, Lugt, & Langen, 2013). However, because this study

focuses on the capacity to attract foreign investments in Europe, we solely analyze inward FDI

7

made within the mentioned region. The ability to attract (inward) FDI is a good indication of a

city's competitive success (Lovering, 2003). Inward investments allow flow of goods, capital,

resources, information and or services from external world to domestic market (host

country/region/city/port) (Karlsen, Silseth, Benito, & Welch, 2003). The port inward FDI

operations aim to attract more foreign direct investment, attract international private companies,

increase investments and traffic volumes and this all to aid the local economic growth.

2.2 Positive effects of port on the city

With the presence of a port in/near a city, the port has an influence on the city to focus on export

related industries. The transport costs are affected by the connectivity between inland countries

(region) and available ports. For example, in comparison with other inland countries, the Czech

Republic, Switzerland and Austria that are surrounded by ports in the European port system, and

this advantage affords these countries more negotiation power to decrease transport costs in

business opportunities (Merk & Hesse, The Competitiveness of Global Port-Cities: The Case of

Hamburg, Germany , 2012). Secondly, another benefit of ports on urban regions is the creation

of an additional added-value. For example, Rotterdam generated 12.8 billion U.S dollars of

added-value in 2007, which accounted for ten percent of its regional GDP (Merk, 2014) This

value comes from four sources (Ferrari, Parola, & Gattorna, Measuring the quality of port

hinterland accessibility: The Ligurian case, 2011):

 The increase of employment opportunities and income by the construction and operation

of port infrastructures

 The increase of employment opportunities and income by port related industries

 A stimulated domestic demand by the increase of income

 Foreign investment that is attracted by a port’s welfare

8

Merk (2014) also states that as the scale of a port becomes larger, the added value also grows e.g

up to ten percent in employment in the ports of North West Europe. Thirdly, the growth of (port)

employment: a study of the European port region shows that 100 million units of cargo

throughput will create 0.0003% of regional employment opportunities (Ferrari, O., Bottaso, &

Tei, 2012). To add to this, a port city is becoming an innovation center for port related industries

(2014). Fourth, the spillovers (technology, salary) of economic benefits will spread to other cities

in the vicinity of the port (region). A port can do this by increasing its port competitiveness in

terms of connectivity and port efficiency; the purpose of this is to improve its locational status in

global port networks and thereby increase its urban competitiveness, thus building a bridge

between ports and municipalities (Zhao, Xu, Wall, & Stavropoulos, 2017). In the case study of

Rotterdam, the positive spillovers of the Rotterdam port have even spread to nearby countries

such as German industries (Merk, 2014). Based on this research of Merk (2014) there are three

aspects of port competitiveness. The first one is maritime connectivity, the aspect to measure the

level of accessibility of a certain port. The second aspect is port efficiency, throughput of

container and bulk goods, as well as ship calling and other indicators of port activeness. The

third aspect is hinterland connectivity, how well a port is connected and reachable for the region

around the port.

In order to satisfy these demands of multinational corporations, the destination of foreign

investment should possess as many as attracting factors related to locational advantages. To

emphasize, because we focus on the inward investment, we should focus on the determinants of

investing in the host country.

2.3 Business sectors and proximity to port

9

In the previous section we discussed the attracting factors of port regions and cities but the

question remains; which business sectors are attracted the most by the presence of a port in an

area? Some business sectors (manufacturing, logistics, transport for instance) are attracted by

being near a port. Being close to a port provide these firms with advantages concerning

transaction and transportation cost (Jacobs, Ducruet, & De Langen, Integrating world cities into

production networks: The case of port cities, 2010). In recent times, ports have slowly moved

away from city centers (Jacobs, Ducruet, & De Langen, Integrating world cities into production

networks: The case of port cities, 2010). There are many reasons explaining this phenomena;

environmental awareness and the right for cleaner air (public good), lack of land to expand port

related business activities near city centers (Jacobs, Ducruet, & De Langen, Integrating world

cities into production networks: The case of port cities, 2010) (Hoyle, 1989) and governments

are more involved in spatial planning and designing creating specific places for these industries

to conduct their businesses. Furthermore, Jacobs (2007) argues that because port related

activities went from a more public (governmental) domain of business to private

(corporate/investors) business negatively impacting the port-city relationship because “the

dependence of ports on the urban labor market as well as the reduced dependence of cities on

ports for local economic growth” (Jacobs, Political Economy of Port Competition , 2007).

On the other side of production related businesses, we have services related activities. These

activities are mostly ICT, insurance and consultancy related businesses (see Jacobs 2007 et al.

table 1 for complete overview). It is tough to pinpoint that these sectors exist near ports regions

specifically to enhance/provide port business with for example consultancy or legal support. In

other words, it is near impossible to categorize financial service related businesses in port

10

regions that are there solely there because of the port simply because there isn’t extensive data

available to proof this.

3. THE HYPOTHESES

FDI is positively related to economic growth, more often than not regardless of a host country’s

human capital level. Furthermore, these investments can create jobs for in a region and increases

the competitiveness in the host country (Wang & Wong, 2009). As firms looking to make a

Foreign Direct Investment are assumed to be profit maximizers, they select an investment based

on the chosen region’s characteristics impacting profits relative to other regions (Makabenta,

2002). Some of the determinants of FDI inflows, based on existing theories are the market size,

the advanced infrastructure of big cities and ports, natural resources, the proximity to European

markets and finally, legislative and political risks (Ledyaeva, 2009). Accessibility to ports and

connected cities by rail and road are positively related to FDI locations especially for firms

seeking to locate in areas near ports to reduce transportation costs (Makabenta, 2002).

Makabenta (2002) shows in her research in the Philippines that the port and highway variables

have strong pull effects on manufacturing FDI, as potential investment areas do not only need

pools of skilled labour, but also need good transport options to markets and/or sources of

resources via ports and roads. The availability of a port, the marginal effect of the dummy

variable PORT, in the study increased the new FDIs by x1.62. This hints to the conclusion that

further improvement of the port (region) increases the attractiveness of foreign direct

investments. Similar results have been concluded in Nyamai & Wall’s (2015) research which

looked at competitiveness between port and non-port cities. The results showed that for the port

cities higher education and liner shipping were positive and significant indicating that smart

11

people and global shipping networks are needed to attract more FDI. Whereas for non-port cities

the employment rate was positive and significant indicating that an increase in employment

would increase FDI in the city. However, port cities remain the most competitive compared to

non-port ones because of the ability to attract FDI due to a growth in the number of smart human

capital (Nyamai & Wall, 2015).

Hypothesis 1: If a region includes a port, it is expected to attract more FDI compared to a

non-port region.

The growth of the port of Shanghai is related to the development of its economy, manufacturing

and foreign trade, this because Shanghai is a major exported of manufactured products.

Therefore, it is needed for this market to develop a major international port in/near Shanghai.

The port serves as a city-serving hub port-city, the port basically serves as an international

shipping center for the region for the mass-produced goods that need to be exported, as well as

the resources that need to be imported (Huang, 2009). To deal with these trades, a trade- and

financial service center will be set up in the city. This is supported by Makabenta (2002) as

shown in the results where manufacturing FDI firms looks for regions that have, among other

aspects, access to ports and highways as to which firms have to ability to efficiently transport

their manufactured products. These two effects also have the largest marginal effects on the

attraction of FDI. Furthermore, also European ports such as Rotterdam and Antwerp have

developed their ports to big facilities of production and manufacturing because they are

dependent on the import of raw materials and want to be close to the port (Jacobs, Ducruet, & De

Langen, Integrating world cities into production networks: The case of port cities, 2010).

Therefore, we would expect businesses within the manufacturing and “wholesale, warehousing,

logistics and transport” businesses to be drawn by the attractiveness of short distances or direct

12

accessibility of nearby ports due to the fact that the main goal of ports is to load and unload the

goods as quick and efficient as possible (Jacobs, Ducruet, & De Langen, Integrating world cities

into production networks: The case of port cities, 2010). Business sectors that might be drawn to

the port but need not to be near the port are those that are concerned with the service aspect of

the business.

Hypothesis 2: The effect of the port in attracting FDI is stronger for investments in the

Manufacturing sectors relative to the Services sectors.

Ledyaeva (2009) suggests that in general competition for FDI between regions with ports has

increased after the crisis. The negative spatial relationship in FDI within the group of port-

endowed regions indicates that if one region with a port can offer additional advantages in other

FDI determinants than what is offered by neighboring port regions, foreign investors will tend to

choose that region. Components of port competitiveness such as; cost‐related vessel and cargo

entering, efficient inland transport network, frequency of large container ships' calling,

inland transportation cost, port accessibility/congestion/safety, professionals and skilled

labor in port operations and reliability of schedules in port are factors than can either

increase or decrease a port’s attractiveness (Yeo, Roe, & Dinwoodie, 2011)

A prime example of such port competitiveness are the ports of Shanghai and Ninbo. With the

ever-growing interest in FDI in China, the Yangtze River Delta is expanding exponentially. In

addition, two of the fastest growing container lines in the world, Cosco Container Lines and

China Shipping Container Lines, not only have their headquarters in Shanghai but also use

Shanghai as their main hub port in China. Competitive wise this is obviously better for the port

in Shanghai than Ningbo port. This is especially the case since Shanghai’s throughput is largely

domestic cargo, with international import and export still playing a major role within the port.

13

The potential for a further significant expansion in demand for the port of Shanghai is therefore

obvious (Cullinane, Teng, & Wang, 2006). However, it should be mentioned that in the future, as

the development of smaller ports such as Ningbo increases and with the ever-growing interest for

FDI in China, the port of Ningbo will benefit the greatest marginal benefit from the economies of

scale and efficiency improvement (Cullinane, Teng, & Wang, 2006). Especially because of the

ever-growing costs when dealing with larger ports, Hong Kong’s port charges for example are

the highest in the world and are at least 63 percent more expensive than other Asian ports (Yeo,

Roe, & Dinwoodie, 2011) In Asia, there appears to be a link between the size of the port and the

attraction of FDI to the port region. We will therefore test if this is the case in Europe as well.

Hypothesis 3: The size of the port is positively related with the number of total investments and

this relationship is stronger for large, main ports.

14

4. DATA & METHODOLOGY

4.1 Data

To examine the level of attractiveness of inward FDI between European regions explained by the

presence of a port, we chose the number of investment projects as the independent variable of

our analysis since it is a widely accepted operationalization of the competitiveness among the

multiple location alternatives in the economic research. Information concerning investment

projects were extracted from the FDI & Market dataset which includes th

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