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The Global Agglomeration of Multinational Firms

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  • Maggie Xiaoyang Chen

    ()
    (Institute for International Economic Policy, George Washington University)

  • Laura Alfaro

    ()
    (Harvard Business School, Harvard University/NBER)

Abstract

The proliferation of multinational activities has led to the emergence of new industrial clusters around the world. In this paper, we examine how "first nature" location fundamentals and "second nature" agglomeration economies jointly determine the global landscape of multinational firms. Using a unique worldwide plant dataset that reports detailed location, ownership, and operation information for plants in more than 100 countries, we construct a spatially continuous index of global agglomeration and investigate the patterns and determinants of clustering between multinational firms. Our analysis indicates that multinationals' agglomeration goes above and beyond first-nature driven geographic concentration. Second-nature forces including knowledge spillovers, capital-market externalities, and vertical production linkages play a significant role. In comparison to domestic plants, knowledge spillovers and capital market externalities exert a stronger effect on the clustering of multinational firms while labor market pooling has a weaker impact. These findings remain robust when we examine entry decisions and explore the process of agglomeration.

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File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Chen_IIEPWP2010-16.pdf
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Bibliographic Info

Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2010-16.

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Length: 45 pages
Date of creation: Jun 2010
Date of revision:
Publication status: Published in Harvard Business School BGIE Unit Working Paper No. 10-043
Handle: RePEc:gwi:wpaper:2010-16

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Web page: http://www.gwu.edu/~iiep/
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Related research

Keywords: Multinational firm; agglomeration; first nature; second nature; input-output linkage; knowledge spillover; factor market externality;

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Cited by:
  1. Serafinelli, Michel, 2013. "Good Firms, Worker Flows and Productivity," MPRA Paper 47508, University Library of Munich, Germany.
  2. Sun, Churen & Yu, Zhihao & Zhang, Tao, 2012. "Agglomeration and Trade with Heterogeneous Firms," MPRA Paper 49001, University Library of Munich, Germany, revised 17 Aug 2013.
  3. Carluccio, Juan & Fally, Thibault, 2010. "Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain," CEPR Discussion Papers 7866, C.E.P.R. Discussion Papers.
  4. William R. Kerr & Scott Duke Kominers, 2010. "Agglomerative Forces and Cluster Shapes," NBER Working Papers 16639, National Bureau of Economic Research, Inc.
  5. Lorenzo Burlon, 2012. "How Do Aggregate Fluctuations Depend on the Network Structure of the Economy?," Working Papers in Economics 278, Universitat de Barcelona. Espai de Recerca en Economia.

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