Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms
Chen, Maggie Xiaoyang
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CitationAlfaro, 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.
AbstractMultinationals 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.
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:27864355
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