Abstract

This paper aims to enrich the existing literature on multinational companies' location choices by considering the role of internal and external agglomeration. Existing empirical studies have highlighted that multinational companies search for externalities, and thus co-locate with other companies that could provide them with information, knowledge and complementary innovation. Scant attention has been instead, and somehow surprisingly, devoted to the geographic proximity of the same company's different units, i.e. to the internal agglomeration forces. Multinational companies are multi-unit and multi-localized and their competitive advantage crucially depends on the coordination, monitoring and control of their value chain activities dispersed across and within countries. The empirical evidence also shows that multinational companies increasingly adopt a cumulative behaviour in the same areas when locating their greenfield initiatives. In this paper, we aim to answer the following questions: i) to what extent companies' pre-existing geographical configurations do impact their subsequent location choices within a country? ii) to what extent the inclusion of international agglomeration factors improves the understanding of companies' location choices? iii) what is the relative importance of internal vs. external agglomeration forces? iv) which value chain activities do have a higher impact on multinational companies' location choices? We aim to answer these questions by relying on the empirical analysis of foreign companies' location choices in Italy, in the period 1998-2012. Empirical findings confirm the role of external agglomeration, and highlight that internal agglomeration is the dominant force when foreign companies have already a presence in the country. These results prompt significant policy implications for the attraction of foreign investments in Italy.