The effect of diversity and proximity on agglomeration of multinational enterprise
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Since the ‘Open door policy’ was implemented, competition between cities to attract foreign investment was becoming more and more crucial. Driven by this trend, local authorities prioritise their city development agenda on attraction of foreign firms to meet the demand from the global economic system. Through the circulation of knowledge flows, technology flows, and capital flows, cities acquire the nutrition from ‘Global pipelines’ and exchange the local knowledge with MNEs. Hence, economic activities and location attributes to some extent determine the spatial agglomeration of multinationals. The agglomeration of multinationals has meaningful implications for local development, because of the huge amount of foreign direct investment (FDI) operation undertaken by MNEs in all industries and services.
This study suggests to combine geographic proximity from FDI location theory and traditional location theory with agglomeration theory to explain the foreign firms’ agglomeration in the sector-region topic. There are some prerequisites need to clarify here. Knowledge flows are assumed to be acquired by co-located firms. Each cluster provides ‘open membership’ (knowledge sharing is transparent and noticed) to each firm. Firms that have higher degree of connectivity (many firms surrounding them) receive more knowledge from the network. In some models, firm size is not regarded as atomistic, and turnover will be used to capture firm-size. Geographically weighted measures are introduced to capture the effect of local clusters on MNE’s agglomeration. Through the use of different analytical techniques, the study examines the effect of diverse local sectors and proximity on the location choice of foreign firms. Furthermore, the study tests the effect in different conditions, with different bandwidths and firms’ turnover. Location factors are also included in the research framework.
This study provide an integrated location perspective on foreign and local firms, hopefully trigger the further discussion on co-agglomeration issues between different disciplines. Specifically, the discussion of logic behind foreign firm’s spatial decision is a contribution to existing knowledge body, such as whether relatedness of technology and different geographical proximity are the determinants to their spatial agglomeration. It also provides an empirical evidence from China to illustrate the emerging phenomena since China has already been the biggest FDI receiver in the world since 2014. The research identified several findings: (1) significant county clusters are identified based on co-agglomeration of foreign and local firms. There are three significant clusters: Shanghai cluster, Suzhou cluster and Hangzhou clusters. The outlier clusters are different in Jiangsu and Zhengjiang province, there are several isolated significant clusters in northern Jiangsu, but a connected economic block exits in southern Zhejiang. (2) Spatial concentration of relatedness (within sectors) and unrelatedness (between sectors) Foreign firms prefer to locate in local clusters who own the similarity of technology and knowledge with them. What’s more, HT foreign firms tend to locate in HT and medium HT local clusters. (3) One firm’s medicine is another firms’ poison in attracting foreign firms. In the diversity agglomeration, some firms get benefit by co-locating with other firms, but some might be harmed by it. This argument is supported by the empirical researches in Netherlands, the heterogeneity of agglomerations on firm performance are strongly moderated by firms characteristics (Knoben, et al., 2015). (4) The U-relationship between foreign manufactures and local KI services agglomeration and proximity. (5)High speed railway station is strongly related to the locality of foreign firms.
The findings of the thesis will provide policy makers a clear picture of co-agglomeration patterns in Yangtze River Delta. In addition, local governments who adopts policy of encouraging FDI by foreign firms has a reference to conduct their spatial plan in their territories.Keywords:
Urban agglomeration
Inward investment
Investment
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The location choices of foreign direct investment within the European Union are increasingly seen as “location tournaments” between countries willing to attract firms. The spatial organization of these multinational firms has become a very sensitive topic. Within this context, we study the location choices of Japanese firms in Europe during the period 1984–1993. Added to the classical location advantages that may determine the choice of an investor, various state policy variables are considered. The attractiveness of countries might also be submitted to agglomeration effects with the clustering of Japanese firms generating self-reinforcing positive externalities. We test, in a conditional logit model, for this effect and for its temporal dimension: do Japanese firms tend to choose the same countries and the same dates of entry? We find evidence of both spatial and temporal agglomeration in the location behavior of Japanese firms in Europe. We also try to determine the influence of competetion intensity on the proximity choices of firms.
Externality
Inward investment
Nested logit
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The objective of this paper is to explore the relative importance of each of Marshall’s agglomeration mechanisms by examining the location of new manufacturing firms in Spain. In particular, we estimate the count of new firms by industry and location as a function of (pre-determined) local employment levels in industries that: 1) use similar workers (labor market pooling); 2) have a customer-supplier relationship (input sharing); and 3) use similar technologies (knowledge spillovers). We examine the variation in the creation of new firms across cities and across municipalities within large cities to shed light on the geographical scope of each of the three agglomeration mechanisms. We find evidence of all three agglomeration mechanisms, although their incidence differs depending on the geographical scale of the analysis.
Pooling
Scope (computer science)
Economies of scope
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This paper examines empirically whether firms located in strong industrial clusters are more innovative than firms located outside these regions. The study performs a firm-level analysis for two countries: Italy and the United Kingdom. European patent data for the period 1990-98 are used as indicator of firms' innovative activity, and are related to employment in the region where the firms are located, and other cluster-specific and firm-specific variables. The main result of the paper is that clustering alone is not conducive to higher innovative performance. Whereas location in a cluster densely populated by other innovative firms positively affects the likelihood of innovating, quite strong disadvantages seem to arise from the presence of non-innovative firms in a firm's own industrial sector. Regarding the impact of other industrial sectors, preliminary results seem to indicate, in the case of Italy, that a strong presence of firms in other related industries spurs innovative performance.
Manufacturing sector
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Externality
International business
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We examine the impacts of agglomeration economies on the location of Foreign Direct Investment (FDI) in Vietnam. Using a large dataset that provides detailed information about individual firms, we investigate the location choices by 920 newly created foreign firms in 2009 in about 125 different 4-digit industries. The estimates of the conditional logit model show that agglomeration benefits motivate foreign firms in the same industries and from the same countries of origin to locate near each other. However, the empirical results also reveal that there is competition among provinces in Vietnam in attracting foreign investors, and the locations of Vietnamese firms have no effects on the location decisions by foreign firms in the same industry. This is one of the few studies of agglomeration effects on the location of Foreign Direct Investment in transition economies in general and Vietnam in particular.
Vietnamese
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Many previous studies have shown that the localisation of firms can be an important factor in attracting new foreign direct investment into a host country. What has been missing in this literature thus far, however, is an investigation into the reasons why industry clusters attract firms. We distinguish between “efficiency agglomerations” as firms locating close to each other because they can increase their efficiency by doing so, and “demonstration effects”, whereby existing firms send signals to new investors as to the reliability of the host country and newly entering firms follow previous firms. In this paper we try to disentangle these two effects, by examining the location of US and UK firms in Ireland. We calculate proxies for “efficiency agglomerations” and “demonstration effects” and include these proxies in an empirical model of the location decision of firms. For US firms, we find that both efficiency agglomeration and demonstration effects are important determinants of entry. For UK firms, however, the evidence is not as clear cut.
Urban agglomeration
Investment
Empirical evidence
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The focus of our contribution is to shed light on the importance of firm agglomerations and FDI as drivers of firm survival in Italy. We focus upon different types of agglomeration economies related to the geographical context checking how these economies impact differently on heterogeneous firms survival and whether effects are robust to different estimators (Probit, Cox hazard models, Probit Heckman) and to different assumptions about inter-and intra-regional spillovers. The novelty our paper with respect to previous studies is twofold. First of all, we focus both on external economies and on firm internationalization, two crucial determinants of firm productivity and competitiveness and ultimately of firm survival. Hence, we consider the intertwined role of firm global activities with respect to the local drivers of firm dynamics by comparing foreign investors in Italy and Italian firms' investing abroad to domestic firms to catch a crucial source of heterogeneity of firm behavior with respect to external economies (correcting for the endogeneity of the FDI variables and for sample selection). Secondly, we use a very large dataset at firm level which takes into account several different dimensions at firm, industry and province level (previous studies are mostly at sectoral or at province/regional level) for more than 500,000 observations concerning Italian manufacturing corporate firms disaggregated by sector and by 103 provinces over a long span of time (2002-2010) which allows to also catch the effect of the crisis. With respect to agglomeration economies the paper analyses whether and how firms' exit choices are influenced by five different agglomeration indicators related to the geographical context: 1) External economies arising from localization economies due to the spatial concentration of firms in the same industry (GLAESER et al., 1992) and to 2) local production systems (Industrial districts); 3) External economies available to all local firms irrespective of sector and arising from urban size and density (urbanization economies); 4) External economies available to all local firms stemming from specialisation of firms in different varieties which may favour intra- and inter industry knowledge spillovers via Jacobs externalities (JACOBS, 1969); 5) diversification due to unrelated variety to capture the portfolio effect arising from the spatial concentration of firms belonging to different and non-complementary industries which may protect the region from sector-specific shocks (FRENKEN et al., 2007). We check whether the relevance of these agglomeration economies differ substantially between Italian firms and firm which invest in active or passive FDI. We get evidence on three issues: 1) Benefits from geographically and industry bounded specialisation for survival; 2) Industrial districts economies impact on firm survival 3) Diversification economies relevance.
Endogeneity
Urban agglomeration
Probit
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This paper analyzes the location choice determinants of French first-time investments in Europe, North America and North Africa. Firm locations are examined on two geographical scales, the national and regional level. The final sample comprises 307 location decisions in 27 countries and across 45 regions. Both, location- and firm-specific variables are used for analysing the investment strategy of French firms. The results show that higher market demand and cultural proximity to France increase the likelihood of a particular location to be chosen, whereas higher labour cost and a larger distance between a foreign location and the headquarters deter FDI investments. Manufacturing and older companies are more likely to establish their first subsidiary in Eastern Europe. Furthermore, this study examines the extent to which French investors choose foreign locations that already host a significant number of French firms. The results obtained from regressions with various absolute and relative agglomeration measures suggest that French investors are rather attracted by firm cluster in general, or by the unobserved factors that led to the agglomeration in the first place, than by any nation-specific firm cluster.
Sample (material)
Location
Investment
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Through spatial analyses of a unique foreign firm data set, this study examines the spatial patterns of foreign firms in a globalizing Southern city and the associated factors at the neighborhood level. It finds that locations with high business density, especially a historic base of foreign firms, have an advantage in attracting foreign direct investments. Further, Japanese firms stand out due to a strong relationship between the local concentration of the Japanese population and the distribution of Japanese firms. Results suggest that, in addition to traditional consideration of agglomeration effects that are highly focused on firm-level linkages and knowledge spillover, it is important to include demographic transformation and overlapped space between work and livelihood into the theoretical framework to understand the location decisions of foreign direct investment at the local level. Such a broadened view becomes more urgent with the rise of emerging economies worldwide and continuous influx of immigration to the United States.
Spillover effect
Gateway (web page)
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