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Publications
Publications
  • 2019
  • Chapter
  • The Oxford Handbook of Structural Transformation

Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms

By: Laura Alfaro and Maggie Xiaoyang Chen
  • Format:Print
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Abstract

Multinationals exhibit distinct agglomeration patterns, which have transformed the global landscape of industrial production (Alfaro and Chen, 2014). 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. In particular, we run a horserace between two distinct economic forces: location fundamentals and agglomeration economies. We find that location fundamentals, including market access and comparative advantage, and agglomeration economies, including capital-good market externality and technology diffusion, play a particularly important role in multinationals' economic geography. These findings remain robust when we use alternative measures of trade costs, address potential reverse causality, and explore regional patterns.

Keywords

Multinational Firm; Economic Geography; Agglomeration; Location Fundamentals; Agglomeration Economies; Multinational Firms and Management; Geographic Location; Industry Clusters; Economics

Citation

Alfaro, Laura, and Maggie Xiaoyang Chen. "Location Fundamentals, Agglomeration Economies, and the Geography of Multinational Firms." Chap. 10 in The Oxford Handbook of Structural Transformation, edited by Célestin Monga and Justin Yifu Lin. Oxford University Press, 2019.
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About The Author

Laura Alfaro

General Management
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    • 2023
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    Global Supply Chains: The Looming 'Great Reallocation'

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    Urgent: The IMF Must Reform

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    • April 2023
    • Journal of the European Economic Association

    The Real Exchange Rate, Innovation and Productivity

    By: Laura Alfaro, Alejandro Cuñat, Harald Fadinger and Yanping Liu
More from the Authors
  • Global Supply Chains: The Looming 'Great Reallocation' By: Laura Alfaro and Davin Chor
  • Urgent: The IMF Must Reform By: Laura Alfaro, Guillermo Calvo, José de Gregorio, Augusto de la Torre, Roque Fernandez, Pablo Guidotti, Enrique Mendoza, Ernesto Talvi, Liliana Rojas-Suarez and Andrés Velasco
  • The Real Exchange Rate, Innovation and Productivity By: Laura Alfaro, Alejandro Cuñat, Harald Fadinger and Yanping Liu
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