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Network and Border Effects: Where Do Foreign Multinationals Locate in Germany?

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  • Julia Spies

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 conditional and a nested logit model resemble the structure of the location choice process of individual investors well. 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 labour costs exhibit the expected negative impact. In the sectoral estimations, it is shown that these effects vary in their relevance among manufacturing and service affiliates, and between upstream and downstream activities.

Suggested Citation

  • Julia Spies, 2009. "Network and Border Effects: Where Do Foreign Multinationals Locate in Germany?," IAW Discussion Papers 47, Institut für Angewandte Wirtschaftsforschung (IAW).
  • Handle: RePEc:iaw:iawdip:47
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    More about this item

    Keywords

    Location choice; multinational firms; nested logit model;
    All these keywords.

    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

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