The Internationalization of Production and Industrial Districts: An Analysis of Italy’s Foreign Direct Investments

Using data on Italy's outward foreign direct investment (FDI) flows by sector, source province and destination country between 1997 and 2001, this paper studies the determinants of Italy's foreign direct investment (FDI). The aim is to identify the industrial structure and local characteristics associated with higher levels of FDI, including the role of industrial districts. Our results suggest that FDI propensity is positively related to the presence of large firms and industrial groups and that there is no robust evidence of a positive district effect on FDI. The contribution of industrial districts to Italy's FDI is much smaller than their contribution to Italy's exports. Overall, these findings help to explain why the process of production internationalization has been quantitatively smaller in Italy than in other European countries.