Agglomeration in the Geographical Location of Swedish MNFs

Abstract

In this chapter we have briefly reviewed the recent theoretical advances made regarding the location of production, with emphasis on agglomeration of production across countries. We have confronted the theoretical explanations with the quite scarce empirical evidence on agglomeration in foreign production. Finally, by pooling data on foreign production by Swedish firms and country level data, we have investigated whether any agglomeration patterns could be detected in Swedish foreign production.

The results suggest that patterns of agglomeration do prevail but are limited to the R&D-intensive production. This is in line with explanations of agglomeration presented in much of the spillover literature and also conforms with the results presented in a number of more micro-oriented studies. Agglomeration of knowledge-intensive production that occurs at the country level, may over time show up in altered patterns of specialization across countries. Moreover, such location could also have direct welfare implications by affecting growth rates through the accumulation of knowledge capital. Accordingly, as FDI and foreign production have evolved into a major force in the world economy, its implications for home and host countries also become more apparent.

Keywords: Agglomeration, clustering, Foreign Direct Investment

JEL Classification: F23