Multinational Firms’ Location and the New Economic Geography

Multinational Firms’ Location and the New Economic Geography

New Horizons in International Business series

Edited by Jean-Louis Mucchielli and Thierry Mayer

This book analyses how foreign direct investors choose their locations, whilst exploring the forces which shape international economic geography. Although these two issues are, to some extent, inter-related, researchers have only recently acknowledged the similarity of economic geography and international business approaches to the empirical assessment of likely causes of the degree of spatial concentration observed in many modern industries.

Chapter 1: Geographical concentration of production by leading firms in EU manufacturing

Leo Sleuwaegen and Reinhilde Veugelers

Subjects: business and management, international business, economics and finance, regional economics, geography, economic geography, urban and regional studies, regional economics

Extract

1. Geographical concentration of production by leading firms in EU manufacturing Leo Sleuwaegen and Reinhilde Veugelers INTRODUCTION 1.1 The process of market integration, triggered in the European Union (EU) by the Single Market Programme (SMP), systematically changes the nature of competition, and therefore the structure of firms and industries. There is a widespread recognition of the potential benefits in terms of higher efficiency and increased competition. The ‘official EU’ view, summarized in the Cecchini Report on the ‘Costs of non-Europe’, anticipated four main effects, each having implications for the structure of industries and firms: ● ● ● ● direct cost savings due to the elimination of non-tariff barriers, such as fewer customs delays and costs of multiple certification; cost savings derived from increased volumes and more efficient location of production (scale and learning economies and better exploitation of comparative advantage); tightening of competitive pressures, reduced prices and increased efficiency as more firms from different Member States compete directly in the bigger marketplace; speedier innovation from increased competitive pressures. At the same time, policy-makers particularly in smaller regions worry about what the effects of economic integration will be on the location of production activities. A common concern among politicians of peripheral regions in the EU is that economic integration will lead to a loss of industry production and jobs in their regions. These concerns are partly supported by recent theoretical work, which suggests that economic integration may indeed lead to increased concentration of production and larger...

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