Where do foreign affiliates of Spanish multinational firms locate in developing and transition economies?

Josep Marti (), Maite Alguacil () and Vicente Orts

No 2013/19, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: In this paper we examine how different host country characteristics affect the location decision of Spanish multinational firms in developing and transition countries, particular attention being paid to the sectoral composition of foreign direct investments (FDI). The estimation of a set of logit models allows us to consider different substitutability patterns among alternatives. The study focuses on a broad firm-level sample of 4,177 Spanish affiliates established in 52 countries over the period 1990 to 2010. The results suggest that Spanish FDI in developing and transition economies are driven by both market-seeking and efficiency-seeking factors. FDI is found to be positively related to the size of the market and negatively related to labor costs. The estimates also reveal that Spanish investment in developing and transition countries exhibit a pronounced agglomeration effect, although the intensity of these externalities depends on both the sort of activity and the nationality of competitors. Furthermore, our results show differences between manufactures and services in other local factors, such as human capital, macroeconomic instability, and financial risk, thereby confirming the idea that investors in each sector have different motivations for locating foreign affiliates in developing countries. The quality of infrastructures and institutions also appear to influence the location of FDI in these economies.

Keywords: Location choice; Nested and Mixed Logit models; Developing and transition countries; Multinational firms (search for similar items in EconPapers)
JEL-codes: F21 F23 R39 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2013
New Economics Papers: this item is included in nep-cse, nep-dcm, nep-geo and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2013/19

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