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The Global Agglomeration of Multinational Firms

  • Maggie Xiaoyang Chen


    (Institute for International Economic Policy, George Washington University)

  • Laura Alfaro


    (Harvard Business School, Harvard University/NBER)

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.

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Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2010-16.

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Length: 45 pages
Date of creation: Jun 2010
Date of revision:
Publication status: Published in Harvard Business School BGIE Unit Working Paper No. 10-043
Handle: RePEc:gwi:wpaper:2010-16
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