Modeling Dynamic Location Expansion of Multinational Firms in France

Abstract

This paper focuses on the factors that affect location decisions of multinational firms in the French regions in terms of the type of organizational structure and location characteristics. The objective is to examine the significance of the factors that affect firms’ choice of location and the operations in different locations. The paper considers the manufacturing and service sectors that differ in terms of nature of products and operations. This paper uses firm-level data extracted from “Bilan France” database. The database contains 6840 investment projects that cover the period from 2001 to 2011. The firms included in the database originate from 77 foreign countries. The study utilizes the properties of mixed logistic regression and nested logit to fulfill the objectives of the paper. The results show that (a) the organizational structure of projects in the French regions is not a random process, that is, coordination and communication costs matter for multinational firms, (b) multinational firms are willing to group their projects geographically in the same region, (c) the organizational structure of multinational corporations in France matters for the location decision of their new projects more than the regional characteristics, (d) the concentration of projects is more strategic for the manufacturing sector relative to the service sector, (e) internal coordination costs and the effect of stages (upstream and downstream) are more sensitive in the manufacturing sector. Having agreed upon in the literature that location decisions are country specific, this study offers robust evidence that multinational corporations in France adjust organizational structure and take into consideration regional characteristics in order to benefit from economies of scale.

Keywords: Foreign direct investment (FDI), Organizational structure, Geographical location, Regions, Grouping

JEL Classification: D22, D23, F21, F23