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Location decision of heterogeneous multinational firms

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  • Chen, Maggie Xiaoyang
  • Moore, Michael

Abstract

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.

Suggested Citation

  • Chen, Maggie Xiaoyang & Moore, Michael, 2009. "Location decision of heterogeneous multinational firms," MPRA Paper 33482, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:33482
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    More about this item

    Keywords

    multinational firm; location decision; firm heterogeneity; productivity;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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