Spatial agglomeration of multinational enterprises: the role of information externalities and knowledge spillovers

Abstract

This study suggests a model for the agglomerative behavior of multinational enterprises (MNEs) with local competitors. Relying on MNEs’ spatial distribution across 686 Italian territorial units, we find that MNEs’ location behavior is influenced by (i) information externalities, giving rise to locational cascades and the imitation of other MNEs and (ii) potential knowledge spillovers, which might act as both a centrifugal and a centripetal force, depending on the nature of local counterparts. Specifically, MNEs tend not to agglomerate with domestic companies, as they perceive potential knowledge inflows to be lower than potential leakages, unless domestic companies enjoy some comparative advantages. Conversely, MNEs are willing to agglomerate with other MNEs, as they bet on a positive balance between knowledge inflows and outflows.