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Firm Heterogeneity and Location Choice of European Multinationals

Josep Marti (), Maite Alguacil and Vicente Orts

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we investigate how the different characteristics of European multinational firms affect their decision to locate in different foreign markets. Considering the existence of n geographically separated markets with different attributes, in terms of entry or fixed costs, variable production costs and the market potential, our theoretical model shows that both firm and country characteristics determine the location of multinational firms. The model reveals that given the characteristics of the countries, the decision to enter a specific country in order to serve all markets globally will depend on all the sources of a firm’s heterogeneity. In the empirical analysis, we drawn on a dataset comprised of harmonized and detailed firm-level data across European countries for 2008 (EFIGE dataset). The results obtained confirm that firms’ international location decision reflects the underlying dissimilarities of European multinational firms, including the specific industry in which they operate. More specifically, our estimations show that among European firms investing in non-European countries, only the most productive firms invest in Latin America and those that decide to enter North America are more productive than firms that locate in China and India. However, we find that this ranking may vary across industries, depending not only on TFP, but also on the years of establishment and the firms’ human capital and R&D intensity.

Keywords: multinational firms; firm heterogeneity; location choices; European FDI (search for similar items in EconPapers)
JEL-codes: D24 F14 F21 (search for similar items in EconPapers)
Date: 2015-03-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-geo and nep-int
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https://mpra.ub.uni-muenchen.de/63178/15/MPRA_paper_63178.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/63182/1/MPRA_paper_63182.pdf revised version (application/pdf)

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Working Paper: Firm Heterogeneity and Location Choice of European Multinationals (2015) Downloads
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