TY - JOUR
T1 - Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States
AU - Shaver, J. Myles
AU - Flyer, Fredrick
PY - 2000/12
Y1 - 2000/12
N2 - An overlooked aspect of agglomeration economies, which are positive externalities that stem from the geographic clustering of industry, is that firms contribute to the externality in addition to benefiting from the externality. This insight suggests that if firms are heterogeneous they will differ in the net benefits they receive from agglomerating. We argue that firms with the best technologies, human capital, training programs, suppliers, or distributors will gain little, yet competitively suffer when their technologies, employees, and access to supporting industries spill over to competitors. Therefore, these firms have little motivation to geographically cluster despite the existence of agglomeration economies. Conversely, firms with the weakest technologies, human capital, training programs, suppliers, or distributors have little to lose and a lot to gain; therefore, these firms are motivated to geographically cluster. As a result, when firms are heterogeneous we expect agglomeration to be characterized by adverse selection. We find supportive evidence of these arguments by examining the location choice and survival of foreign greenfield investments in U.S. manufacturing industries.
AB - An overlooked aspect of agglomeration economies, which are positive externalities that stem from the geographic clustering of industry, is that firms contribute to the externality in addition to benefiting from the externality. This insight suggests that if firms are heterogeneous they will differ in the net benefits they receive from agglomerating. We argue that firms with the best technologies, human capital, training programs, suppliers, or distributors will gain little, yet competitively suffer when their technologies, employees, and access to supporting industries spill over to competitors. Therefore, these firms have little motivation to geographically cluster despite the existence of agglomeration economies. Conversely, firms with the weakest technologies, human capital, training programs, suppliers, or distributors have little to lose and a lot to gain; therefore, these firms are motivated to geographically cluster. As a result, when firms are heterogeneous we expect agglomeration to be characterized by adverse selection. We find supportive evidence of these arguments by examining the location choice and survival of foreign greenfield investments in U.S. manufacturing industries.
KW - Agglomeration
KW - Firm heterogeneity
KW - Foreign direct investment
KW - Location
KW - Survival
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U2 - 10.1002/1097-0266(200012)21:12<1175::aid-smj139>3.0.co;2-q
DO - 10.1002/1097-0266(200012)21:12<1175::aid-smj139>3.0.co;2-q
M3 - Article
AN - SCOPUS:0001457624
SN - 0143-2095
VL - 21
SP - 1175
EP - 1193
JO - Strategic Management Journal
JF - Strategic Management Journal
IS - 12
ER -