Regional Subsidies and Industrial Prospects of Lagging Regions

The authors undertake a direct evaluation of a fiscal incentive policy in Brazil, the Fundos Constitucionais de Financiamento (Constitutional Funds). Findings indicate that the pull of firm headquarters is very strong relative to the constitutional funds for vertically integrated firms, but that, with nonparametric controls for time invariant spatial heterogeneity, the funds provide significant incentives for firms in many of the targeted industries.