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The Global Agglomeration of Multinational Firms

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  • Laura Alfaro

    (Harvard Business School, Business, Government & the International Economy Unit)

  • Maggie Chen

    (George Washington University)

Abstract

The explosion of multinational activities in recent decades is rapidly transforming the global landscape of industrial production. But are the emerging clusters of multinational production the rule or the exception? What drives the offshore agglomeration of multinational firms in comparison to the agglomeration of domestic firms? 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. Our analysis presents new stylized facts that suggest the emerging offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Agglomeration economies including capital-good market externality and technology diffusion play a more important role in the offshore agglomeration of multinationals than the agglomeration of domestic firms. These findings remain robust when we address potential reverse causality by exploring the regional pattern and process of agglomeration.

Suggested Citation

  • Laura Alfaro & Maggie Chen, 2009. "The Global Agglomeration of Multinational Firms," Harvard Business School Working Papers 10-043, Harvard Business School, revised Apr 2014.
    • Handle: RePEc:hbs:wpaper:10-043
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    More about this item

    Keywords

    multinational firm; agglomeration; location fundamentals; agglomeration economies;
    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

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