Working Paper: CEPR ID: DP6308
Authors: Thierry Mayer; Isabelle Mjean; Benjamin Nefussi
Abstract: Economists explaining location choices of foreign affiliates usually focus on country-level determinants. Costs of production, the size of expected demand, proxies for agglomeration effects, and various policy-related incentives form the usual set of covariates. Two dimensions of those choices are usually omitted. Multinational enterprises (MNEs) usually have more than one affiliate abroad and they also continue to invest domestically during their international expansion. We add to the literature on location choice by accounting for i) the entire network of affiliates of each French MNE over the 1992-2002 period, and ii) the entire set of possible choices by including the home country. Our results show that the interdependence between affiliates of the same MNE matters a great deal for location, both for the choice between different foreign countries and for the choice between investing at home or abroad. Moreover, French firms' propensity to invest abroad is shown to be positively linked to their productivity and the size of their intangible assets.
Keywords: Conditional logit model; Location choice; Multinational firms
JEL Codes: F12; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| French firms' productivity (O49) | propensity to invest abroad (F21) |
| size of intangible assets (O34) | propensity to invest abroad (F21) |
| interdependence of affiliates (L14) | location choices (R32) |
| market access (L17) | likelihood of choosing particular investment locations (G11) |
| financial networks (G29) | location choices (R32) |
| supply access (L95) | likelihood of choosing particular investment locations (G11) |
| financial network strength (G29) | domestic investments (F21) |