The determinants of the location of multinational firms in developing countries: The British experience

Abstract

In this paper, we use firm-level data to analyse the key determinants of the location of British multinational firms (MNFs) in developing countries. We pay particular attention to the potential differences in this matter between manufacturing and services firms and across regions. With this aim, we estimate a set of mixed logit models, allowing us to account for the existence of different substitution patterns among alternative destinations. According to our expectations, the results confirm the relevance of agglomeration forces and market potential in the location of MNFs in developing countries. In addition, findings show that the distance between the home and the host country, the colony past as well as the inflation rate play a key role in the location choice of British MNFs. Finally, we also find empirical evidence that the effect of GDP per capita and the skilled labour differs considerably when considering different regions.