November 2014
Article
Journal of International Economics

The Global Agglomeration of Multinational Firms

By: Laura Alfaro and Maggie Xiaoyang Chen

Format:Print

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 pairwise-industry agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. Our analysis presents new stylized facts that suggest the emerging offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Agglomeration economies including capital-good market externality and technology diffusion play a more important role in the offshore agglomeration of multinationals than the agglomeration of domestic firms. These findings remain robust when we address potential reverse causality by exploring the regional pattern and process of agglomeration.

Keywords

Agglomeration; Agglomeration Economies; Multinational Firms and Management; Manufacturing Industry

Citation

Alfaro, Laura, and Maggie Xiaoyang Chen. "The Global Agglomeration of Multinational Firms." Journal of International Economics 94, no. 2 (November 2014): 263–276. (Revised April 2014. Also NBER Working Paper Series, No. 15576. See Harvard Business School Working Paper, No. 10-043 for longer version.)