Firms' characteristics and their international location strategy: Micro-level evidence from European countries

Abstract

This paper takes micro-level evidence as the basis on which to investigate to what extent firms' heterogeneity is relevant in the internationalization strategy and location choice of European multinational enterprises. We present a model that illustrates how the firm's decision to enter a specific destination to serve all markets globally will depend on the firm attributes related to its efficiency, given the characteristics of the host countries. Our empirical results from a set of multinomial and sequential logistic models confirm that (i) European firms investing in third markets outside Europe are more productive than those that only produce at home and export. For some regions and sectors, they are also more R&D intensive and innovative, and have higher labor skills. In addition, our estimates reveal that (ii) the location choice of their affiliates is mainly defined by differences in productivity and, in some cases, in R&D intensity and innovation.