Regional governance and foreign direct investment: the dynamics of institutional change in Wales and North East England

In recent years, something of a consensus has emerged regarding the need to build local institutional capacity in order to foster and support 'embedded' and sustainable forms of local economic development. This paper focuses on efforts to build local institutional capacity in two British regions - Wales and North East England - with a similar industrial past but dissimilar institutional structures. Addressing recent debates on the 'new regionalism' in economic geography, particularly in terms of the perceived neglect of exogenous forces and the failure to assess the scope for regional agencies to actually foster 'embeddedness', the paper examines the activities of sub-national state agencies in relation to recent efforts to attract and 'embed' mobile investment. We explore the process of local capacity-building according to four key themes identified from a review of recent work on regional governance and economic development. These refer to the role of the central state in structuring economic governance; the organisation of interinstitutional relations; questions of regional coherence and identity in the face of pressures of inter-regional competition and sub-regional fragmentation; and the place of inward investment within broader strategic choices regarding economic development. In conclusion, we suggest that regional agencies capacity to foster embeddedness is limited in the absence of stronger forms of regulation over FDI flows at national and international levels. (C) 2001 Elsevier Science Ltd. All rights reserved.