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Location choices of multinational firms in Europe: the role of national boundaries and EU policy

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Author Info
Roberto Basile (ISAE, Rome)
Davide Castellani (ISE-Università di Urbino)
Antonello Zanfei (ISE-Università di Urbino)

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Abstract

What determines multinational firms’ location choices in Europe? Do national boundaries matter in location decisions? To what extent are European regional policies (Structural and Cohesion Funds) able to mitigate the agglomeration forces at work? Do location determinants differ for EU and US MNEs? In this paper, we address these questions using data from 5,761 foreign subsidiaries established in 55 regions in 8 EU countries over the period 1991-1999 and estimating a nested logit model of location choices. Controlling for regional market size and potential, agglomeration economies and labor markets conditions, we find that EU policy, proxied by Cohesion Fund and Objective 1 eligibility, played a significant role in attracting multinationals. Differences emerge in determinants of EU and US multinationals location choices, with special reference to the role of labor markets. National boundaries do not seem to affect location decisions, with the relevant exception of Italy. Results suggest that multinational firms’ perceive European regions as geo-economic aggregates different from the actual political boundaries of countries.

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Paper provided by EconWPA in its series International Trade with number 0310001.

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Date of creation: 06 Oct 2003
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Handle: RePEc:wpa:wuwpit:0310001

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O52 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Europe
R30 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - General

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frances Ruane & Xiaoheng Zhang, 2007. "Where do MNEs Expand Production: Location Choices of the Pharmaceutical Industry in Europe after 1992," Papers WP211, Economic and Social Research Institute (ESRI). [Downloadable!]
  2. Roberto Basile & Luigi Benfratello & Davide Castellani, 2005. "Attracting Foreign Investments in Europe - are Italian Regions Doomed?," ERSA conference papers ersa05p148, European Regional Science Association. [Downloadable!]
  3. Rodrigo Alegria, 2006. "Countries, Regions and Multinational Firms: Location Determinants in the European Union," ERSA conference papers ersa06p143, European Regional Science Association. [Downloadable!]
  4. Roberto Basile & Luigi Benfratello & Davide Castellani, 2005. "Attracting Foreign Direct Investments in Europe: are Italian Regions Doomed?," Development Working Papers 200, Centro Studi Luca d\'Agliano, University of Milano. [Downloadable!]
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