IDEAS home Printed from https://ideas.repec.org/a/eee/regeco/v40y2010i1p20-32.html
   My bibliography  Save this article

Network and border effects: Where do foreign multinationals locate in Germany?

Author

Listed:
  • Spies, Julia

Abstract

This study assesses the determinants of location choices of foreign multinational firms at the level of German federal states. Adjacency and existing firm networks are assumed to influence the investors' profits in a given location by overcoming informational disadvantages when entering the new market. A nested logit model resembles the structure of the location choice process well, since it allows foreign investors to have differing perceptions about the substitutability among East and West German federal states. By using affiliate-level data between 1997 and 2005, the results confirm that firms react positively to local demand, a common border and existing firm networks, while unit labor costs exhibit the expected negative impact. In the sectoral estimations, it is shown that these effects vary in their relevance across manufacturing and service affiliates, and between upstream and downstream activities and that intersectoral linkages play an important role.

Suggested Citation

  • Spies, Julia, 2010. "Network and border effects: Where do foreign multinationals locate in Germany?," Regional Science and Urban Economics, Elsevier, vol. 40(1), pages 20-32, January.
  • Handle: RePEc:eee:regeco:v:40:y:2010:i:1:p:20-32
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0166-0462(09)00073-8
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sebastian Krautheim, 2013. "Export-supporting FDI," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
    2. Buch, Claudia M. & Toubal, Farid, 2009. "Openness and growth: The long shadow of the Berlin Wall," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 409-422, September.
    3. Benjamin Nefussi & Cyrille Schwellnus, 2010. "Does FDI in manufacturing cause FDI in business services? Evidence from French firm-level data," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 180-203, February.
    4. Crozet, Matthieu & Mayer, Thierry & Mucchielli, Jean-Louis, 2004. "How do firms agglomerate? A study of FDI in France," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 27-54, January.
    5. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    6. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2006. "Where enterprises lead, people follow? Links between migration and FDI in Germany," European Economic Review, Elsevier, vol. 50(8), pages 2017-2036, November.
    7. Jürgen Bitzer & Holger Görg, 2009. "Foreign Direct Investment, Competition and Industry Performance," The World Economy, Wiley Blackwell, vol. 32(2), pages 221-233, February.
    8. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    9. Defever, Fabrice, 2006. "Functional fragmentation and the location of multinational firms in the enlarged Europe," Regional Science and Urban Economics, Elsevier, vol. 36(5), pages 658-677, September.
    10. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
    11. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, May.
    12. Uhlig, Harald, 2008. "The slow decline of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 517-541, December.
    13. Krugman, Paul, 1991. "Increasing Returns and Economic Geography," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 483-499, June.
    14. Amiti, Mary & Smarzynska Javorcik, Beata, 2008. "Trade costs and location of foreign firms in China," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 129-149, February.
    15. Fujita,Masahisa & Thisse,Jacques-François, 2013. "Economics of Agglomeration," Cambridge Books, Cambridge University Press, number 9781107001411, April.
    16. Basile, Roberto & Castellani, Davide & Zanfei, Antonello, 2008. "Location choices of multinational firms in Europe: The role of EU cohesion policy," Journal of International Economics, Elsevier, vol. 74(2), pages 328-340, March.
    17. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    18. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    19. Salvador Barrios & Holger Görg & Eric Strobl, 2006. "Multinationals' Location Choice, Agglomeration Economies, and Public Incentives," International Regional Science Review, , vol. 29(1), pages 81-107, January.
    20. Inui, Tomohiko & Matsuura, Toshiyuki & Pocet, Sandra, 2008. "The Location of Japanese MNCs Affiliates: Agglomeration Spillovers and Firm Heterogeneity," Discussion Paper Series a506, Institute of Economic Research, Hitotsubashi University.
    21. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc.
    22. Guimaraes, Paulo & Figueiredo, Octavio & Woodward, Douglas, 2000. "Agglomeration and the Location of Foreign Direct Investment in Portugal," Journal of Urban Economics, Elsevier, vol. 47(1), pages 115-135, January.
    23. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers 0803, Oxford University Centre for Business Taxation.
    24. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
    25. Roberto, Basile, 2004. "Acquisition versus greenfield investment: the location of foreign manufacturers in Italy," Regional Science and Urban Economics, Elsevier, vol. 34(1), pages 3-25, January.
    26. Bellak, Christian & Leibrecht, Markus & Riedl, Aleksandra, 2008. "Labour costs and FDI flows into Central and Eastern European Countries: A survey of the literature and empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 17-37, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Chen, 2015. "Do immigrants attract FDI? District-level evidence from Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113130, Verein für Socialpolitik / German Economic Association.
    2. Combes, Pierre-Philippe & Gobillon, Laurent, 2015. "The Empirics of Agglomeration Economies," Handbook of Regional and Urban Economics, Elsevier.
    3. Andrea Ascani & Riccardo Crescenzi & Simona Iammarino, 2015. "Economic Institutions and the Location Strategies of European Multinationals in their Geographical Neighbourhood," LEQS – LSE 'Europe in Question' Discussion Paper Series 97, European Institute, LSE.
    4. Crescenzi R. & Pietrobelli C. & Rabellotti R., 2015. "The location strategies of multinationals from emerging countries in the EU regions," MERIT Working Papers 009, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    5. repec:spr:soinre:v:133:y:2017:i:3:d:10.1007_s11205-016-1403-5 is not listed on IDEAS
    6. repec:bla:jecrev:v:68:y:2017:i:1:p:95-114 is not listed on IDEAS
    7. Andrea Gauselmann & Philipp Marek, 2012. "Regional determinants of MNE’s location choice in post-transition economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(4), pages 487-511, November.
    8. Blanc-Brude, Frédéric & Cookson, Graham & Piesse, Jenifer & Strange, Roger, 2014. "The FDI location decision: Distance and the effects of spatial dependence," International Business Review, Elsevier, vol. 23(4), pages 797-810.
    9. repec:spo:wpecon:info:hdl:2441/c8dmi8nm4pdjkuc9g8mcgcdbi is not listed on IDEAS
    10. Crescenzi, Riccardo & Pietrobelli, Carlo & Rabellotti, Roberta, 2012. "Innovation drivers, value chains and the geography of multinational firms in European regions," LSE Research Online Documents on Economics 53193, London School of Economics and Political Science, LSE Library.
    11. Mayer, T. & Mejean, I. & Nefussi, B., 2010. "The location of domestic and foreign production affiliates by French multinational firms," Journal of Urban Economics, Elsevier, vol. 68(2), pages 115-128, September.
    12. Nielsen, Bo Bernhard & Asmussen, Christian Geisler & Weatherall, Cecilie Dohlmann, 2017. "The location choice of foreign direct investments: Empirical evidence and methodological challenges," Journal of World Business, Elsevier, vol. 52(1), pages 62-82.
    13. Roberto Josep Martí & Maite Alguacil & Vicente Orts, 2013. "Where do foreign affiliates of Spanish multinational firms locate in developing and transition economies?," Working Papers 2013/19, Economics Department, Universitat Jaume I, Castellón (Spain).
    14. Riccardo Crescenzi & Carlo Pietrobelli & Roberta Rabellotti, 2014. "Innovation drivers, value chains and the geography of multinational corporations in Europe," Journal of Economic Geography, Oxford University Press, vol. 14(6), pages 1053-1086.
    15. Andrea Gauselmann & Philipp Marek, 2011. "Regional Determinants of MNE's Location Choice in Transition Economies," WIFO Working Papers 412, WIFO.
    16. Dogaru, Teodora & Burger, Martijn & van Oort, Frank & Karreman, Bas, 2014. "The Geography of Multinational Corporations in CEE Countries: Perspectives for Second-Tier City Regions and European Cohesion Policy," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 29, pages 193-214.
    17. Riccardo Crescenzi & Carlo Pietrobelli & Roberta Rabellotti, 2015. "Location Strategies of Multinationals from Emerging Countries in the EU Regions," LEQS – LSE 'Europe in Question' Discussion Paper Series 93, European Institute, LSE.
    18. Gonchar, Ksenia & Marek, Philipp, 2013. "Natural-resource or Market-seeking FDI in Russia? An Empirical Study of Locational Factors Affecting the Regional Distribution of FDI Entries," IWH Discussion Papers 3/2013, Halle Institute for Economic Research (IWH).
    19. Falck, Oliver & Heblich, Stephan & Kipar, Stefan, 2010. "Industrial innovation: Direct evidence from a cluster-oriented policy," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 574-582, November.
    20. Gauselmann, Andrea & Marek, Philipp & Angenendt, Jan Philipp, 2011. "MNE’s Regional Location Choice - A Comparative Perspective on East Germany, the Czech Republic and Poland," IWH Discussion Papers 8/2011, Halle Institute for Economic Research (IWH).
    21. Stefan Kipar, 2012. "Determinants of Firm Innovation - Evidence from German Panel Data," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 45.
    22. repec:bla:presci:v:95:y:2016:i:4:p:775-800 is not listed on IDEAS

    More about this item

    Keywords

    Location choice Multinational firms Nested logit model;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:regeco:v:40:y:2010:i:1:p:20-32. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/regec .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.