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Economics of Scope, Agglomeration and Location of the Multinational Firm

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  • José Pedro Pontes
  • John B. Parr

Abstract

A classification of the locational patterns of firms (with economies of scope present) is outlined, in order to cast light on the location of the multiplant, multinational firm. This is driven by three forces: economies of scope that follow from the co-location of different activities; transportation costs of the final good; and factor mobility costs. It is concluded that the single-plant firm prevails when spatial economies of scope are strong in relation to either transportation or mobility costs. The vertical (horizontal) multiplant firm emerges when mobility costs of factors (transportation costs on the final good) are high. These two kinds of spatial costs, which are mutually exclusive, favor the formation of multinational firms.

Suggested Citation

  • José Pedro Pontes & John B. Parr, 2004. "Economics of Scope, Agglomeration and Location of the Multinational Firm," Working Papers Department of Economics 2004/04, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp42004
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    References listed on IDEAS

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    1. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
    2. John B. Parr, 2004. "Economies of scope and economies of agglomeration: The Goldstein-Gronberg contribution revisited," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 38(1), pages 1-11, March.
    3. Ignatius J. Horstmann & James R. Markusen, 2021. "Endogenous market structures in international trade (natura facit saltum)," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 2, pages 25-45, World Scientific Publishing Co. Pte. Ltd..
    4. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    5. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
    6. Panzar, John C & Willig, Robert D, 1981. "Economies of Scope," American Economic Review, American Economic Association, vol. 71(2), pages 268-272, May.
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    More about this item

    Keywords

    Economies of scope; Economies of agglomeration; Multiplant firms; Multinational firms.;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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