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Where do foreign affiliates of Spanish multinational firms locate in developing and transition economies?

  • Roberto Josep Martí


    (Departament of Economics, Universitat Jaume I, Castellón, Spain)

  • Maite Alguacil


    (Departament of Economics, Universitat Jaume I, Castellón, Spain)

  • Vicente Orts


    (Departament of Economics, Universitat Jaume I, Castellón, Spain)

In this paper we examine how different host country characteristics affect the location decision of Spanish multinational firms in developing and transition countries, particular attention being paid to the sectoral composition of foreign direct investments (FDI). The estimation of a set of logit models allows us to consider different substitutability patterns among alternatives. The study focuses on a broad firm-level sample of 4,177 Spanish affiliates established in 52 countries over the period 1990 to 2010. The results suggest that Spanish FDI in developing and transition economies are driven by both market-seeking and efficiency-seeking factors. FDI is found to be positively related to the size of the market and negatively related to labor costs. The estimates also reveal that Spanish investment in developing and transition countries exhibit a pronounced agglomeration effect, although the intensity of these externalities depends on both the sort of activity and the nationality of competitors. Furthermore, our results show differences between manufactures and services in other local factors, such as human capital, macroeconomic instability, and financial risk, thereby confirming the idea that investors in each sector have different motivations for locating foreign affiliates in developing countries. The quality of infrastructures and institutions also appear to influence the location of FDI in these economies.

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Paper provided by Economics Department, Universitat Jaume I, Castellón (Spain) in its series Working Papers with number 2013/19.

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Length: 30 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:jau:wpaper:2013/19
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