Working Paper: CEPR ID: DP7079
Authors: Peter Debaere; Joonhyung Lee; Myungho Paik
Abstract: With a firm-level dataset, we study the location decision of all South Korean multinationals across China's regions between 1992 and 2004, taking into account spatial aspects. Our conditional logit estimates confirm previous studies that stress the agglomeration effects along industry and along national lines in firms' location choice. In particular, South Korean investors target the place where there are more firms irrespective of their nationality and, at the same time, more affiliates from South Korean multinationals. More importantly, we decompose these agglomeration effects into a pure agglomeration effect and an upstream and downstream (backward and forward) linkage effect. We find that the presence of upstream and downstream South Korean affiliates significantly increases the likelihood that a South Korean multinational invests there. At the same time, however, backward and forward linkages with the companies irrespective of their nationality do not seem to matter. As such, our analysis of investors' location choice brings together two perspectives: (backward and forward) linkages and agglomeration along national lines.
Keywords: agglomeration; multinationals
JEL Codes: F1; F2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Presence of South Korean upstream and downstream affiliates (L22) | Likelihood of South Korean multinational investing in a given region (F23) |
| Agglomeration effects (R11) | Likelihood of investment by South Korean multinationals (F23) |
| Nationality of establishments (F23) | Likelihood of investment by South Korean multinationals (F23) |
| General backward and forward linkages at the industry level (L69) | Investment decisions (G11) |