The Location of Domestic and Foreign Production Affiliates by French Multinational Firms

Economists explaining location choices of foreign affiliates usually focus on country-level determinants. Costs of production, the size of expected demand, proxies for agglomeration effects, and various policy-related incentives form the usual set of covariates. Two dimensions of those choices are usually omitted. Multinational entreprises (MNEs) usually have more than one affiliate abroad and they also continue to invest domestically during their international expansion. We add to the literature on location choice by accounting for i) the entire network of affiliates of each French MNE over the 1992-2002 period, and ii) the entire set of possible choices by including the home country. Our results show that the interdependence between affiliates of the same MNE matters a great deal for location, both for the choice between different foreign countries and for the choice between investing at home or abroad. Moreover, French firms’ propensity to invest abroad is shown to be positively linked to their productivity and the size of their intangible assets.