Internal versus external agglomeration advantages in investment location choice: The role of global cities' international connectivity

Rene Belderbos*, Davide Castellani*, Helen S. Du*, Geon Ho Lee*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Global location choices for foreign direct investments by MNCs aim to benefit both from the advantages of collocation with other activities of the firm (internal agglomeration) and the advantages of proximity to local industry clusters of similar activities (external agglomeration). We submit that there are important trade-offs between internal and external agglomeration because internal knowledge transfer associated with collocation of various value-chain activities of the MNC is confronted with greater risk of knowledge spillovers to rival firms if there is a substantial local cluster. Moreover, we argue that the international connectivity of a location reduces the importance of local agglomeration as a driver of investment location decisions because connectivity allows the MNC to reap benefits from agglomeration at a distance through the (temporary) transfer of people and knowledge. Connectivity changes the trade-offs between internal and external agglomeration because it enhances the spatial reach of internal agglomeration more than external agglomeration. The influence of connectivity is greater for service-related value-chain activities than for production-related activities. We find support for these hypotheses in an analysis of 38,873 greenfield cross-border investment decisions across diverse value-chain activities and industries in 71 global cities, 2008-2016.
Original languageEnglish
Pages (from-to)745-763
Number of pages19
JournalJournal of International Business Studies
Volume55
Issue number6
Early online date1 Mar 2024
DOIs
Publication statusPublished - Aug 2024

Keywords

  • Agglomeration
  • Cross-border investments
  • Global cities
  • Multinational corporations (MNCs)
  • Multinational enterprises (MNEs)
  • Value chain
  • Connectivity
  • Mixed logit
  • RESEARCH-AND-DEVELOPMENT
  • MULTINATIONAL-CORPORATIONS
  • KNOWLEDGE
  • HETEROGENEITY
  • SUBSIDIARIES
  • HEADQUARTERS
  • STRATEGIES
  • ENTERPRISE
  • DISTANCE
  • FIRMS

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