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Location decision of heterogeneous multinational firms

  • Chen, Maggie Xiaoyang
  • Moore, Michael O.

We examine how multinational firms with heterogeneous total factor productivity (TFP) self-select into different host countries. Both aggregate- and firm-level estimates suggest that more productive French firms are more likely than their less efficient competitors to invest in relatively tough host countries. Countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address potential TFP endogeneity.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 80 (2010)
Issue (Month): 2 (March)
Pages: 188-199

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Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:188-199
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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