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
Date Written: December 2003
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: Suggested Citation
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