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The Global Agglomeration of Multinational Firms

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  • Maggie Xiaoyang Chen

    (Institute for International Economic Policy, George Washington University)

  • Laura Alfaro

    (Harvard Business School, Harvard University/NBER)

Abstract

The proliferation of multinational activities has led to the emergence of new industrial clusters around the world. In this paper, we examine how "first nature" location fundamentals and "second nature" agglomeration economies jointly determine the global landscape of multinational firms. Using a unique worldwide plant dataset that reports detailed location, ownership, and operation information for plants in more than 100 countries, we construct a spatially continuous index of global agglomeration and investigate the patterns and determinants of clustering between multinational firms. Our analysis indicates that multinationals' agglomeration goes above and beyond first-nature driven geographic concentration. Second-nature forces including knowledge spillovers, capital-market externalities, and vertical production linkages play a significant role. In comparison to domestic plants, knowledge spillovers and capital market externalities exert a stronger effect on the clustering of multinational firms while labor market pooling has a weaker impact. These findings remain robust when we examine entry decisions and explore the process of agglomeration.

Suggested Citation

  • Maggie Xiaoyang Chen & Laura Alfaro, 2010. "The Global Agglomeration of Multinational Firms," Working Papers 2010-16, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2010-16
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    More about this item

    Keywords

    Multinational firm; agglomeration; first nature; second nature; input-output linkage; knowledge spillover; factor market externality;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • D2 - Microeconomics - - Production and Organizations
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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