Working Paper: NBER ID: w15576
Authors: Laura Alfaro; Maggie Chen
Abstract: The explosion of multinational activities in recent decades is rapidly transforming the global landscape of industrial production. But are the emerging clusters of multinational production the rule or the exception? What drives the offshore agglomeration of multinational firms in comparison to the agglomeration of domestic firms? Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of agglomeration and analyze the different patterns underlying the global economic geography of multinational and non-multinational firms. We present new stylized facts that suggest the offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Agglomeration economies including technology diffusion and capital-good market externality play a more important role in the offshore agglomeration of multinationals than the agglomeration of domestic firms. These findings remain robust when we explore the process of agglomeration.
Keywords: multinational firms; agglomeration; economic geography; technology diffusion; capital-good market externalities
JEL Codes: D2; F2; R1; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm type (L20) | agglomeration probability (R32) |
| MNC foreign subsidiaries (F23) | agglomeration probability in capital-intensive industries (R32) |
| technology linkage (L24) | agglomeration probability for MNC foreign subsidiaries (F23) |
| technology diffusion (O33) | agglomeration probability for MNCs vs domestic plants (F23) |
| MNC foreign subsidiaries (F23) | correlation with domestic plants (Q34) |
| distinct characteristics of MNCs (F23) | differences in agglomeration patterns (R11) |