Munich Personal RePEc Archive

Location decision of heterogeneous multinational firms

Chen, Maggie Xiaoyang and Moore, Michael (2009): Location decision of heterogeneous multinational firms. Published in: Journal of International Economics , Vol. 2, No. 80 (March 2010): pp. 188-199.

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Abstract

We examine how multinational firms with heterogeneous total factor productivity (TFP) self-select into different host countries. Both aggregate- and firm-level estimates suggest that more productive French firms are more likely than their less efficient competitors to invest in relatively tough host countries. Countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address the potential TFP endogeneity.

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