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Unformatted text preview: Copyright © 2009, 2010 by Laura Alfaro and Maggie Chen Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. The Global Agglomeration of Multinational Firms Laura Alfaro Maggie Chen Working Paper 10-043 The Global Agglomeration of Multinational Firms & Laura Alfaro y Harvard Business School and NBER Maggie Chen z George Washington University April 2010 Abstract The proliferation of multinational activities has led to the emergence of new in- dustrial clusters around the world. In this paper, we examine how "&rst nature" lo- cation fundamentals and "second nature" agglomeration economies jointly determine the global landscape of multinational &rms. Using a unique worldwide plant dataset that reports detailed location, ownership, and operation information for plants in more than 100 countries, we construct a spatially continuous index to measure the signi&cance and extent of agglomeration between multinational &rms. Our analy- sis indicates that multinationals¡agglomeration goes above and beyond &rst-nature driven geographic concentration due to market size, comparative advantage, and trade costs. Second-nature forces including knowledge spillovers, capital-market external- ities, and vertical production linkages also play a signi&cant role. In comparison to domestic plants, knowledge spillovers and capital market externalities exert a stronger impact on multinational &rms while labor market pooling has a weaker e/ect. These &ndings remain robust when we examine entry decisions and explore the process of agglomeration. JEL codes: F2, D2, R1, R3 Key words: multinational &rm, agglomeration, &rst nature, input-output linkage, knowledge spillover, factor market externality & We thank Jim Anderson, Bruce Blonigen, Jim Harrigan, Keith Head, Tarun Khanna, Keith Maskus, Mike Moore, John Ries, Roberto Samaneigo, Stephen Yeaple, Tony Yezer, and seminar and conference participants at Harvard Business School, the University of Virginia Darden School of Business, George Washington Univeristy, the AEA meeting, the ETSG plenary session, the EIIT meeting, and the LACEA Trade, Integration and Growth Meeting for helpful comments and suggestions. We also thank William Kerr for kindly providing us the patent concordance data, Bill Simpson for excellent advice in calculating the agglomeration indexes, and Francisco Pino for help with the GIS software. We are grateful to Dun ¢ Bradstreet and Dennis Jacques for helping us with the D¢B data set and HBS and GW for &nancial support. y Email: email@example.com; Phone: 617-495-7981....
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- Spring '08