Location Choices of Multinational Firms in Europe: The Role of National Boundaries and EU Policy

Univ. of Urbino, Economics, Mathematics & Statistics Working Paper No. 78,2003; Centro Studi Luca d'Agliano Development Studies Working Papers

34 Pages Posted: 9 Nov 2003

See all articles by Roberto Basile

Roberto Basile

University of L'Aquila - Faculty of Economics

Davide Castellani

Henley Business School

Antonello Zanfei

Universita di Urbino

Date Written: December 2003

Abstract

What determines multinational firms' location choices in Europe? Do national boundaries matter in location decisions? To what extent are European regional policies (Structural and Cohesion Funds) able to mitigate the agglomeration forces at work? Do location determinants differ for EU and US MNEs? In this paper, we address these questions using data from 5,761 foreign subsidiaries established in 55 regions in 8 EU countries over the period 1991-1999 and estimating a nested logit model of location choices. Controlling for regional market size and potential, agglomeration economies and labor markets conditions, we find that EU policy, proxied by Cohesion Fund and Objective 1 eligibility, played a significant role in attracting multinationals. Differences emerge in determinants of EU and US multinationals location choices, with special reference to the role of labor markets. National boundaries do not seem to affect location decisions, with the relevant exception of Italy. Results suggest that multinational firms perceive European regions as geo-economic aggregates different from the actual political boundaries of countries.

Keywords: Europe, Foreign Direct Investments, Location, Nested Logit Models

JEL Classification: F23, O52, R30

Suggested Citation

Basile, Roberto and Castellani, Davide and Zanfei, Antonello, Location Choices of Multinational Firms in Europe: The Role of National Boundaries and EU Policy (December 2003). Univ. of Urbino, Economics, Mathematics & Statistics Working Paper No. 78,2003; Centro Studi Luca d'Agliano Development Studies Working Papers, Available at SSRN: https://ssrn.com/abstract=455040 or http://dx.doi.org/10.2139/ssrn.455040

Roberto Basile

University of L'Aquila - Faculty of Economics ( email )

Roio Poggio, 67040
Italy

Davide Castellani (Contact Author)

Henley Business School ( email )

Whiteknights
Reading, Berkshire RG6 6UD
United Kingdom

Antonello Zanfei

Universita di Urbino ( email )

Via Saffi 2
Urbino, Pesaro-Urbino 61029
Italy

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