When do firms choose global cities as foreign investment locations within countries? The roles of contextual distance, knowledge intensity, and target-country experience

Rene Belderbos, H Du and Arjen Slangen

No 640988, Working Papers of Department of Management, Strategy and Innovation, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven

Abstract: Foreign investors generally need to overcome a liability of foreignness stemming from contextual distance between their home country and the target country. We argue that they can limit that liability more easily by investing in a global city rather than elsewhere in the target country. Accordingly, we hypothesize that the contextual distance to a target country has a positive effect on a firm’s propensity to invest in a global city in that country. We also predict that this effect is stronger for investments in knowledge-intensive activities and weaker for investors with more target-country experience in general and target-country experience in global cities in particular. Our hypotheses receive considerable support in an analysis of 11,748 foreign greenfield investments by 1,025 manufacturing and service firms during 2008-2012. Our findings suggest that global cities are superior subnational locations for gathering contextual knowledge about target countries and limiting the liability of foreignness.

Keywords: contextual distance; global cities; knowledge-intensive activities; liability of foreignness; location decisions; target-country experience; contextual distance; global cities; knowledge-intensive activities; liability of foreignness; location decisions; target-country experience (search for similar items in EconPapers)
Pages: 37
Date: 2019-09-11
New Economics Papers: this item is included in nep-geo, nep-int and nep-ure
Note: paper number MSI_1908
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Published in FEB Research Report MSI_1908

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Related works:
Journal Article: When do firms choose global cities as foreign investment locations within countries? The roles of contextual distance, knowledge intensity, and target-country experience (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:msiper:640988

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