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The Latent Heterogeneity in Investment Location Choices of Multinational Enterprises

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Author Info
Simona Rasciute () (Dept of Economics, Loughborough University)
Eric J Pentecost () (Dept of Economics, Loughborough University)

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Abstract

The heterogeneity of investing firms is an important determinant of the distribution of foreign direct investment (FDI) location decisions. This paper, for the first time, explicitly allows for firms’ heterogeneity by using a latent class discrete choice model and a new multi-level data set to examine over 1100 individual firm FDI-location decisions over an 11-year period. The highly significant empirical results show that the responsiveness of the probabilities of choices to invest in a particular country location to country-level variables differs both across sectors and across firms of different sizes and profitability. Therefore, controlling for investing firms’ heterogeneity is important if robust estimates are to be obtained.d.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/LCM_paper_Rasciute&Pentecost.pdf
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Publisher Info
Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2008_16.

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Date of creation: Dec 2008
Date of revision: Dec 2008
Handle: RePEc:lbo:lbowps:2008_16

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Related research
Keywords: Latent Class model; firm heterogeneity; foreign direct investment; multi-level data;

Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Linkages

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  1. Junyi Shen & Tatsuyoshi Saijo, 2007. "Does energy efficiency label alter consumersf purchase decision? A latent class approach on Shanghai data," OSIPP Discussion Paper 07E005, Osaka School of International Public Policy, Osaka University. [Downloadable!]
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  3. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March. [Downloadable!] (restricted)
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  4. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January. [Downloadable!] (restricted)
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  9. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February. [Downloadable!] (restricted)
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  10. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July. [Downloadable!] (restricted)
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  14. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, vol. 43(4-6), pages 925-934, April. [Downloadable!] (restricted)
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