Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms

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Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms

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Title: Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms
Author: Alfaro, Laura; Chen, Maggie Xiaoyang

Note: Order does not necessarily reflect citation order of authors.

Citation: Alfaro, Laura, and Maggie Xiaoyang Chen. "Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms." Harvard Business School Working Paper, No. 17-014, August 2016.
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Abstract: Multinationals exhibit distinct agglomeration patterns which have transformed the global landscape of industrial production (Alfaro and Chen, 2014). Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of pairwise-industry agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. In particular, we run a horse-race between two distinct economic forces: location fundamentals and agglomeration economies. We find that location fundamentals including market access and comparative advantage and agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals' economic geography. These findings remain robust when we use alternative measures of trade costs, address potential reverse causality, and explore regional patterns.
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:27864355
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