Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms

Laura Alfaro and Maggie Chen

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: Multinationals exhibit distinct agglomeration patterns which have transformed the global landscape of industrial production (Alfaro and Chen, 2014). Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of pairwise-industry agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. In particular, we run a horse-race between two distinct economic forces: location fundamentals and agglomeration economies. We find that location fundamentals including market access and comparative advantage and agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals’ economic geography. These findings remain robust when we use alternative measures of trade costs, address potential reverse causality, and explore regional patterns.

Keywords: multinational firm; economic geography; agglomeration; location fun-damentals; agglomeration economies (search for similar items in EconPapers)
JEL-codes: D2 F2 R1 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016
New Economics Papers: this item is included in nep-geo, nep-int and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2016-18

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