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Total factor productivity or labor productivity? Firm heterogeneity and location choice of multinationals

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  • Tang, Meng-Chi

Abstract

This study considers total factor productivity and labor productivity as different proxies for firm heterogeneity, although they are often used interchangeably in the literature. I argue that the productivity measures are related to the foreign integration strategies adopted by the multinationals and should reflect a different productivity sorting. Using a panel data of Taiwanese multinationals, the empirical results show that the number of their investing locations increases with labor productivity but decreases with total factor productivity. The MNEs with higher total factor productivity were more likely to invest in countries with higher prices or wages. Empirical results also show that China is the top choice for the MNEs with either increasing total factor productivity or labor productivity. If their labor productivity is further increased, they would consider to invest in the U.S. or Hong Kong and Singapore.

Suggested Citation

  • Tang, Meng-Chi, 2017. "Total factor productivity or labor productivity? Firm heterogeneity and location choice of multinationals," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 499-514.
  • Handle: RePEc:eee:reveco:v:49:y:2017:i:c:p:499-514
    DOI: 10.1016/j.iref.2017.03.016
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    Cited by:

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    4. Keqiang Wang & Guoxiang Li & Hongmei Liu, 2020. "Location choice of industrial land reduction in Metropolitan Area: Evidence from Shanghai in China," Growth and Change, Wiley Blackwell, vol. 51(4), pages 1837-1859, December.

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    More about this item

    Keywords

    Productivity; Location choice; Multinationals; Foreign direct investment;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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