Firm heterogeneity and location choice of Taiwanese multinationals (DOI:10.1016/j.jinteco.2008.02.002)

Research output: Contribution to journalComment/debate

16 Citations (Scopus)

Abstract

This paper examines the extent to which production location decisions of Taiwanese multinationals reflect underlying patterns of firm productivity. In our theoretical model, heterogeneous firms in a middle-income country decide on the optimal production locations for serving three geographically separate markets: domestic, foreign high-income and foreign low-income. The model shows that the equilibrium decision of a firm depends on the fixed investment costs of establishing foreign subsidiaries, production costs, transportation costs, market size and its own productivity level. Using firm-level data in 2000, Taiwanese electronics firms are divided into four different categories: non-FDI, investors in China only, investors in the U.S. only, investors in both China and the U.S. We use a multinomial logit model to link firms' location choices with their productivity, controlling for country, industry and other firm characteristics. Our empirical results are consistent with the predictions of the theoretical model. We show that more productive firms engage in outward FDI, with the most productive ones investing in both China and the U.S. We also provide evidence indicating that Taiwanese multinationals investing only in the U.S. are more productive than those investing exclusively in China due to smaller fixed investment costs in China relative to the U.S.

Original languageEnglish (US)
Pages (from-to)403-415
Number of pages13
JournalJournal of International Economics
Volume76
Issue number2
DOIs
StatePublished - Dec 1 2008

Fingerprint

Firm location
Firm heterogeneity
Multinationals
Location choice
China
Investing
Investors
Income
Productivity
Costs
Fixed investment
Firm-level data
Firm productivity
Prediction
Transportation costs
Domestic market
Heterogeneous firms
Industry
Foreign subsidiaries
Multinomial logit model

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

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Firm heterogeneity and location choice of Taiwanese multinationals (DOI:10.1016/j.jinteco.2008.02.002). / Roberts, Bee Yan; Lee, Yi.

In: Journal of International Economics, Vol. 76, No. 2, 01.12.2008, p. 403-415.

Research output: Contribution to journalComment/debate

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