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Location decision of heterogeneous multinational firms

  • Chen, Maggie Xiaoyang
  • Moore, Michael

We examine how multinational firms with heterogeneous total factor productivity (TFP) self-select into different host countries. Both aggregate- and firm-level estimates suggest that more productive French firms are more likely than their less efficient competitors to invest in relatively tough host countries. Countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address the potential TFP endogeneity.

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File URL: http://mpra.ub.uni-muenchen.de/33482/1/MPRA_paper_33482.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33482.

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Date of creation: Aug 2009
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Publication status: Published in Journal of International Economics 80.2(2010): pp. 188-199
Handle: RePEc:pra:mprapa:33482
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