Working Paper | HBS Working Paper Series | 2009

The Global Agglomeration of Multinational Firms

by Laura Alfaro and 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? 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 investigate the patterns and determinants underlying the global economic geography of multinational firms. Our analysis shows that the emerging offshore clusters of multinationals are not a simple reflection of domestic industrial clusters. Location fundamentals including market access and comparative advantage and under-emphasized agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals' offshore agglomeration.

Keywords: Geographic Location; Multinational Firms and Management; Globalized Markets and Industries; Market Entry and Exit; Industry Clusters;

Citation:

Alfaro, Laura, and Maggie Chen. "The Global Agglomeration of Multinational Firms." Harvard Business School Working Paper, No. 10-043, December 2009. (Revised October 2012. NBER Working Paper Series, No. 15576, December 2009)