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Agglomeration, backward and forward linkages: evidence from South Korean investment in China

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  • Peter Debaere
  • Joonhyung Lee
  • Myungho Paik

Abstract

With a firm-level data set, we study the location decision of South Korean multinationals across China's regions. Our conditional logit estimates confirm agglomeration effects along industry and along national lines. We add an upstream and downstream (backward and forward) linkage effect. We find that the presence of upstream and downstream South Korean affiliates significantly increases the likelihood that a South Korean multinational invests in a particular region. However, linkages that do not differentiate by nationality do not seem to matter much. As such, our analysis of investors' location choice brings together two perspectives: linkages and agglomeration along national lines.

Suggested Citation

  • Peter Debaere & Joonhyung Lee & Myungho Paik, 2010. "Agglomeration, backward and forward linkages: evidence from South Korean investment in China," Canadian Journal of Economics, Canadian Economics Association, vol. 43(2), pages 520-546, May.
  • Handle: RePEc:cje:issued:v:43:y:2010:i:2:p:520-546
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    Cited by:

    1. Zheng, Liang & Zhao, Zhong, 2017. "What drives spatial clusters of entrepreneurship in China? Evidence from economic census data," China Economic Review, Elsevier, vol. 46(C), pages 229-248.
    2. Alfaro, Laura & Chen, Maggie Xiaoyang, 2014. "The global agglomeration of multinational firms," Journal of International Economics, Elsevier, vol. 94(2), pages 263-276.
    3. Hu, Zhining & Zheng, Jianghuai & Wang, Jialing, 2011. "Impact of industrial linkages on firm performance in development zones," MPRA Paper 33127, University Library of Munich, Germany.
    4. Debaere, Peter & Lee, Hongshik & Lee, Joonhyung, 2013. "Language, ethnicity and intrafirm trade," Journal of Development Economics, Elsevier, vol. 103(C), pages 244-253.
    5. Yamashita, Nobuaki & Matsuura, Toshiyuki & Nakajima, Kentaro, 2014. "Agglomeration effects of inter-firm backward and forward linkages: Evidence from Japanese manufacturing investment in China," Journal of the Japanese and International Economies, Elsevier, vol. 34(C), pages 24-41.
    6. Che, Yi & Du, Julan & Lu, Yi & Tao, Zhigang, 2017. "Institutional Difference and FDI Location Choice: Evidence from China," MPRA Paper 77158, University Library of Munich, Germany.
    7. Evert Meijers & Martijn Burger & Masahisa Fujita & Nobuaki Hamaguchi, 2016. "Supply chain internationalization in East Asia: Inclusiveness and risks," Papers in Regional Science, Wiley Blackwell, vol. 95(1), pages 81-100, March.
    8. Jonathan Jones & Colin Wren, 2011. "On the Relative Importance of Agglomeration Economies in the Location of FDI Across British Regions," SERC Discussion Papers 0089, Spatial Economics Research Centre, LSE.
    9. Masahisa Fujita & Nobuaki Hamaguchi, 2012. "Japan and economic integration in East Asia: post-disaster scenario," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 48(2), pages 485-500, April.
    10. Been‐Lon Chen & Shun‐Fa Lee, 2012. "Intersectoral Spillovers, Relative Prices and Development Traps," Review of Development Economics, Wiley Blackwell, vol. 16(2), pages 243-261, May.
    11. Sunghoon Chung, 2012. "Environmental Regulation and the Pattern of Outward FDI: An Empirical Assessment of the Pollution Haven Hypothesis," Departmental Working Papers 1203, Southern Methodist University, Department of Economics.
    12. Laura Alfaro & Maggie X. Chen, 2017. "Transportation Cost and the Geography of Foreign Investment," Harvard Business School Working Papers 17-061, Harvard Business School.
    13. Colin Wren & Jonathan Jones, 2012. "On the Relative Importance of Intermediate and Non-Intermediate Goods for FDI Location: A New Approach," ERSA conference papers ersa12p165, European Regional Science Association.
    14. Jones, Jonathan & Wren, Colin, 2011. "On the relative importance of agglomeration economies in the location of FDI across British regions," LSE Research Online Documents on Economics 58526, London School of Economics and Political Science, LSE Library.
    15. PHOLO Alain & TENIKUE Michel & NAFARI Baraka, 2017. "Market Potential, Agglomeration Effects and the Location of French Firms in Africa," LISER Working Paper Series 2017-19, LISER.
    16. Goldbach, Stefan & Nagengast, Arne J. & Steinmüller, Elias & Wamser, Georg, 2017. "The effect of investing abroad on investment at home: On the role of technology, tax savings, and internal capital markets," Discussion Papers 14/2017, Deutsche Bundesbank.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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