Location Decisions of Heterogeneous Multinational Firms

Maggie Chen and Michael O. Moore ()
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Michael O. Moore: Department of Economics/Institute for International Economic Policy, George Washington University

Working Papers from The George Washington University, Institute for International Economic Policy

Abstract: In this paper we examine how multinational firms with varied levels of total factor productivity (TFP) self-select into different host countries. Using a dataset that records the subsidiaries of over 1300 French manufacturing multinationals in 65 potential hosts, we find that firm-level TFP plays an important role in explaining the sorting of French firms across host countries. Both the aggregate- and firm-level estimates suggest that more productive French firms are consistently more likely than their less efficient domestic competitors to invest in relatively tough host countries. In particular, countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address the potential endogeneity of TFP.

Keywords: Foreign direct investment; multinational firms; location decisions; firm heterogeneity; total factor productivity (search for similar items in EconPapers)
JEL-codes: D24 F23 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2008-02
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Forthcoming in Journal of International Economics

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http://www.gwu.edu/~iiep/assets/docs/papers/Chen_Moore_IIEPWP2008-2.pdf (application/pdf)

Related works:
Journal Article: Location decision of heterogeneous multinational firms (2010)
Working Paper: Location Decisions of Heterogeneous Multinational Firms (2009)
Working Paper: Location decision of heterogeneous multinational firms (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:gwi:wpaper:2008-02

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