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The Global Agglomeration of Multinational Firms

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  • Maggie Xiaoyang Chen

    () (Institute for International Economic Policy, George Washington University)

  • Laura Alfaro

    () (Harvard Business School, Harvard University/NBER)

Abstract

The proliferation of multinational activities has led to the emergence of new industrial clusters around the world. In this paper, we examine how "first nature" location fundamentals and "second nature" agglomeration economies jointly determine the global landscape of multinational firms. Using a unique worldwide plant dataset that reports detailed location, ownership, and operation information for plants in more than 100 countries, we construct a spatially continuous index of global agglomeration and investigate the patterns and determinants of clustering between multinational firms. Our analysis indicates that multinationals' agglomeration goes above and beyond first-nature driven geographic concentration. Second-nature forces including knowledge spillovers, capital-market externalities, and vertical production linkages play a significant role. In comparison to domestic plants, knowledge spillovers and capital market externalities exert a stronger effect on the clustering of multinational firms while labor market pooling has a weaker impact. These findings remain robust when we examine entry decisions and explore the process of agglomeration.

Suggested Citation

  • Maggie Xiaoyang Chen & Laura Alfaro, 2010. "The Global Agglomeration of Multinational Firms," Working Papers 2010-16, The George Washington University, Institute for International Economic Policy.
  • Handle: RePEc:gwi:wpaper:2010-16
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    Cited by:

    1. Serafinelli, Michel, 2013. "Good Firms, Worker Flows and Productivity," MPRA Paper 49055, University Library of Munich, Germany, revised 12 Aug 2013.
    2. Riccardo Crescenzi & Kerwin Datu & Simona Iammarino, 2016. "European Cities and Foreign Investment Networks," Papers in Evolutionary Economic Geography (PEEG) 1616, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jul 2016.
    3. Machikita, Tomohiro & Ueki, Yasushi, 2012. "Impact of Production Linkages on Industrial Upgrading in ASEAN, the People’s Republic of China, and India: Organizational Evidence of a Global Supply Chain," ADBI Working Papers 399, Asian Development Bank Institute.
    4. Riccardo Crescenzi & Carlo Pietrobelli & Roberta Rabellotti, 2016. "Regional strategic assets and the location strategies of emerging countries’ multinationals in Europe," European Planning Studies, Taylor & Francis Journals, pages 645-667.
    5. Gilles Duranton & William R. Kerr, 2015. "The Logic of Agglomeration," NBER Working Papers 21452, National Bureau of Economic Research, Inc.
    6. Carluccio, Juan & Fally, Thibault, 2013. "Foreign entry and spillovers with technological incompatibilities in the supply chain," Journal of International Economics, Elsevier, pages 123-135.
    7. Steven Brakman & Harry Garretsen & Charles van Marrewijk, 2015. "The Location of Cross-Border Mergers & Acquisitions in the USA," CESifo Working Paper Series 5331, CESifo Group Munich.
    8. William R. Kerr & Scott Duke Kominers, 2015. "Agglomerative Forces and Cluster Shapes," The Review of Economics and Statistics, MIT Press, pages 877-899.
    9. Lorenzo Burlon, 2012. "How Do Aggregate Fluctuations Depend on the Network Structure of the Economy?," Working Papers in Economics 278, Universitat de Barcelona. Espai de Recerca en Economia.
    10. Marcon, Eric & Puech, Florence, 2017. "A typology of distance-based measures of spatial concentration," Regional Science and Urban Economics, Elsevier, vol. 62(C), pages 56-67.
    11. Laura Alfaro & Maggie X. Chen, 2017. "Transportation Cost and the Geography of Foreign Investment," Harvard Business School Working Papers 17-061, Harvard Business School.
    12. Nicola Cortinovis & Riccardo Crescenzi & Frank van Oort, 2018. "Multinational enterprises, industrial relatedness and employment in European regions," Papers in Evolutionary Economic Geography (PEEG) 1802, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jan 2018.
    13. Sun, Churen & Yu, Zhihao & Zhang, Tao, 2012. "Agglomeration and Trade with Heterogeneous Firms," MPRA Paper 49001, University Library of Munich, Germany, revised 17 Aug 2013.

    More about this item

    Keywords

    Multinational firm; agglomeration; first nature; second nature; input-output linkage; knowledge spillover; factor market externality;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • D2 - Microeconomics - - Production and Organizations
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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