Multinationals and Economic Geography
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Multinationals and Economic Geography

Location, Technology and Innovation

Simona Iammarino and Philip McCann

After more than fifty years of systematic research on multinational enterprises (MNEs) what is apparent is that there is, as yet, no unified or dominant theory of the MNE. The objective of this book is to bring into focus one particular dimension of MNE behaviour and activity that has been relatively under-researched – namely the geography of the multinational enterprise – as understood through the lens of innovation and technological change. The authors clearly demonstrate that geography is becoming increasingly important for MNEs and, in turn, MNEs are becoming progressively more important for economic geography. The pivot on which this vital relationship turns is the creation, diffusion and management of new knowledge.
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Chapter 3: Firm location behaviour in theory: extensions to multiplant and multinational firms

Simona Iammarino and Philip McCann

Extract

As we saw in Chapter 2, issues of geography and location are only included in traditional models of multinational investment and behaviour at a very cursory level, with locations being defined primarily in terms of countries in international economics, and via the inclusion of location ‘L’ in Dunning’s eclectic OLI paradigm. In both of these traditions in general, the various specific local aspects of geography and location which affect and are affected by the presence of MNE investment are not explicitly discussed. However, whenever MNEs make investment decisions, they need to consider exactly where such investments are to be located, and the level of geographical specificity that MNE firms need to consider for such purposes is always much more detailed than simply in which country they should invest. The reason is that project investment returns and firm profitability can vary enormously over even very short distances within an individual national economy. As such, firms must consider first where to invest in terms of which country to invest in, but also at which particular location within that country should the investment be situated.

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