Agglomeration, Backward and Forward Linkages: Evidence from South Korean Investment in China
Peter Marcel Debaere
University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)
University of Texas at Austin - Department of Economics
Hanyang University - College of Policy Sciences
CEPR Discussion Paper No. DP7079
With a firm-level dataset, we study the location decision of all South Korean multinationals across China's regions between 1992 and 2004, taking into account spatial aspects. Our conditional logit estimates confirm previous studies that stress the agglomeration effects along industry and along national lines in firms' location choice. In particular, South Korean investors target the place where there are more firms irrespective of their nationality and, at the same time, more affiliates from South Korean multinationals. More importantly, we decompose these agglomeration effects into a pure agglomeration effect and an upstream and downstream (backward and forward) linkage effect. We find that the presence of upstream and downstream South Korean affiliates significantly increases the likelihood that a South Korean multinational invests there. At the same time, however, backward and forward linkages with the companies irrespective of their nationality do not seem to matter. As such, our analysis of investors' location choice brings together two perspectives: (backward and forward) linkages and agglomeration along national lines.
Number of Pages in PDF File: 35
Keywords: agglomeration, multinationals
JEL Classification: F1, F2
Date posted: February 17, 2009
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