Geographical boundaries of external and internal agglomeration economies

Lavoratori, K. ORCID: https://orcid.org/0000-0002-0078-4525 and Piscitello, L. (2021) Geographical boundaries of external and internal agglomeration economies. In: Colombo, S. (ed.) Spatial Economics Volume II. Palgrave Macmillan, pp. 221-250. ISBN 9783030400941 doi: 10.1007/978-3-030-40094-1_8

Abstract/Summary

This chapter analyses the role of traditional factors associated with Marshallian and Jacobsian economies (i.e. external agglomeration) and the role of factors associated to the intra-firm co-location of activities (i.e. internal agglomeration) in influencing location decisions of multinational enterprises (MNEs) within a foreign country. Our empirical analysis considers the location decision of 447 new greenfield investments in manufacturing activities by 384 foreign MNEs in Italy, throughout the period 1998–2012, at a sub-national NUTS-3 level. Findings from a conditional logit model confirm that (1) both external and internal agglomeration economies have a strong effect on MNEs’ location decisions and (2) once allowing for intra-firm co-location, the influence of external forces decreases. Additionally, results obtained through spatial econometrics techniques show a strong spatial decay effect both for the effects associated with intra-firm co-location in contiguous provinces and for the traditional Marshallian forces. Conversely, the benefits of diversity (Jacobsian economies) cross province geographical boundaries.