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The Latent Heterogeneity in Investment Location Choices of Multinational Enterprises

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  • Simona Rasciute

    ()
    (Dept of Economics, Loughborough University)

  • Eric J Pentecost

    ()
    (Dept of Economics, Loughborough University)

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

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  1. Crozet, M. & Mayer, T. & Micchielli, J.L., 2000. "How Do Firms Agglomerate? A Study of FDI in France?," Papiers d'Economie Mathématique et Applications 2000.50, Université Panthéon-Sorbonne (Paris 1).
  2. 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.
  3. Becker, Sascha O. & Ekholm, Karolina & Jäckle, Robert & Mündler, Marc-Andreas, 2005. "Location choice and employment decisions: a comparison of German and Swedish multinationals," Discussion Paper Series 1: Economic Studies 2005,08, Deutsche Bundesbank, Research Centre.
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  7. Anne-Célia Disdier & Thierry Mayer, 2004. "How Different is Eastern Europe? Structure and determinants of location choices by French firms in Eastern and Western Europe," Working Papers 245489, Institut National de la Recherche Agronomique, France.
  8. Roberto Basile & Davide Castellani & Antonello Zanfei, 2007. "Location choices of multinational firms in Europe: the role of EU cohesion policy," Quaderni del Dipartimento di Economia, Finanza e Statistica 32/2007, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  9. Junyi Shen & Yusuke Sakata & Yoshizo Hashimoto, 2006. "A Comparison between Latent Class Model and Mixed Logit Model for Transport Mode Choice: Evidences from Two Datasets of Japan," Discussion Papers in Economics and Business 06-05, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  10. 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.
  11. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November.
  12. 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.
  13. Claudia M. Buch & Jörn Kleinert & Alexander Lipponer & Farid Toubal, 2005. "Determinants and effects of foreign direct investment: evidence from German firm-level data," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 52-110, 01.
  14. Kimberly A. Clausing & Cosmina L. Dorobantu, 2005. "Re-entering Europe: Does European Union candidacy boost foreign direct investment?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 77-103, 01.
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  17. repec:fth:eeccco:142 is not listed on IDEAS
  18. 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.
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