The Global Agglomeration of Multinational Firms

59 Pages Posted: 18 Dec 2009 Last revised: 24 Apr 2014

Laura Alfaro

Harvard University - Business, Government and the International Economy Unit

Maggie Xiaoyang Chen

George Washington University

Multiple version iconThere are 2 versions of this paper

Date Written: April 22, 2014

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.

Keywords: multinational firm, agglomeration, location fundamentals, agglomeration economies

JEL Classification: F2, D2, R1

Suggested Citation

Alfaro, Laura and Chen, Maggie Xiaoyang, The Global Agglomeration of Multinational Firms (April 22, 2014). Harvard Business School BGIE Unit Working Paper No. 10-043. Available at SSRN: https://ssrn.com/abstract=1524857 or http://dx.doi.org/10.2139/ssrn.1524857

Laura Alfaro (Contact Author)

Harvard University - Business, Government and the International Economy Unit ( email )

Cambridge, MA 02138
United States

Maggie Xiaoyang Chen

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

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