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 9: Empirical evidence on the strategic behaviour of US MNEs within the framework of dynamic differentiated networks

Fragkiskos Filippaios, Constantina Kottaridi, Marina Papanastassiou and Robert Pearce

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

Extract

9. Empirical evidence on the strategic behaviour of US MNEs within the framework of dynamic differentiated networks Fragkiskos Filippaios, Constantina Kottaridi, Marina Papanastassiou and Robert Pearce 9.1 INTRODUCTION One of the seminal contributions towards a realistic understanding of the global economy of the past half-century belongs to Hymer (1960) who challenged the existing theories of foreign direct investment (FDI)1 with his empirical analysis. The main claim of these theories was that FDI would flow from capital abundant, and hence low rate of return on capital, countries, to capital poor, thus high rate of return countries. According to this argument FDI would be expected to flow mainly from developed to developing countries on the one hand, while on the other hand most countries would be almost exclusively either exporters or recipients of FDI capital. What Hymer demonstrated with his investigation of the immediate postwar period was that FDI was a two-way flow among advanced economies and that most countries (even the USA) were both recipients and providers of FDI capital. An exclusively macro-level theory of FDI as being determined only by relative capital availability seemed inadequate. Conceptual thinking in explaining this newly observed behaviour added two new elements in the relevant literature. First, that firms carrying out FDI were doing so not just by being motivated by capital considerations, but also as a way of utilizing more effectively other, more firm-specific, sources of competitiveness (technology, marketing and managerial expertise). Secondly, those foreign investors were often making their...

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