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Extensive summary of all articles of Geographies of Multinationals and the City (UU; GEO4-3910)

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In this summary, all mandatory articles for the course Geographies of Multinationals and the City are summarized. The summary is relatively extensive, meaning that no important aspects are left out. This summary will save you a lot of reading; I can tell.

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  • 29 december 2022
  • 17 januari 2023
  • 108
  • 2022/2023
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Articles included in this summary:

- Barba-Navertti & Venables (2006): facts and issues
- Dunning & Lundan (2008): multinational enterprises and the global economy
- Beugelsdijk & Mudambi (2013): MNEs as border-crossing multi-location enterprises; the role
of discontinuities in geographic space
- Goerzen et al. (2013): global cities and multinational enterprise strategy
- Mudambi et al. (2018): zoom in zoom out; geographical scale and multinational activity
- Crescenzi & Iammarino (2016/2017): global investments and regional development
trajectories
- Ascani & Iammarino (2018): multinational enterprises, service outsourcing, and regional
structural challenge
- Ernst & Kim (2002): global production networks, knowledge diffusion, and local capability
formation
- Cortinovis et al. (2020): multinational enterprises, industrial relatedness, and employment in
European regions
- Javorcik (2004): does foreign direct investment increase the productivity of domestic firms? In
search of spillovers through backward linkages
- Resmini (2019): foreign direct investments, global value chains and regional development
- Ascani et al. (2020): global networks, local specialization, and regional patterns of innovation
- Crescenzi et al. (2014): innovation drivers, value chain and the geography of multinational
corporations in Europe
- Iammarino & McCann (2015): multinational enterprises, innovation networks and the role of
cities
- Comi et al. (2021): judicial efficiency and the location of foreign direct investment
- Crescenzi et al. (2021): FDI inflows in Europe; does investment promotion work
- Juni Zhu et al. (2015): what do multinational firms want from cities
- Barbieri et al. (2022): how does industry 4.0 affect international exposure
- Butollo (2021): digitalization and the geographies of production; towards reshoring or global
fragmentation
- Stapleton & Webb (2020): automation, trade, and multinational activity; micro-evidence
from Spain

,Contents
W2 - Barba Navaretti, G. and Venables, A. (2006), Multinational Firms in the World Economy, 1 ed.,
Princeton University Press......................................................................................................................7
Chapter 1 – Facts and issues...............................................................................................................7
Multinationals: what are they and how are they measured?.........................................................7
The issues.......................................................................................................................................9
Chapter 2 – The multinational enterprise: an overview of theory and empirical findings................11
W2+W3 - Dunning J.H. and Lundan, S.M. (2008). Multinational Enterprises and the Global Economy, 2
ed., Edward Elgar Publishing................................................................................................................12
The motives for foreign production..................................................................................................12
Why do firms wish to engage in foreign production?...................................................................12
The main types of foreign production..........................................................................................13
Other motives for MNE activity....................................................................................................15
The political economy of outward FDI..........................................................................................16
Theories of foreign direct investment..............................................................................................17
Introduction..................................................................................................................................17
Theories of MNE and MNE activity: 1960-76................................................................................17
General explanations of MNE activity...........................................................................................23
An note on an evolutionary approach to explaining MNE activity................................................28
W3 - Beugelsdijk, S. and Mudambi, R. (2013), MNEs as Border-crossing Multi-location Enterprises:
The Role of Discontinuities in Geographic Space. Journal of International Business Studies 44, 413–
422........................................................................................................................................................30
Introduction......................................................................................................................................30
Spatial variation in IB: distance between countries vs within-country variation..............................30
Borders ad discontinuities in space..................................................................................................31
The relationship between spatial costs and economic activity.........................................................32
The way forward: spatial discontinuities and border-crossing multi-location enterprises (MLEs). . .32
W3 - Goerzen A., Asmussen G. and Nielsen, B. (2013), Global cities and multinational enterprise
location strategy. Journal of International Business Studies 44, 427–450............................................34
Economic geography, global cities, and MNE location strategy.......................................................34
What is a global city?....................................................................................................................34
Global cities and the liability of foreignness (LOF)........................................................................34
Global cities and investment motives...........................................................................................36
Global cities and MNE integration................................................................................................37
Global cities and MNE alliance strategy........................................................................................37
Results..............................................................................................................................................37

, Discussion.........................................................................................................................................38
W3 - Mudambi, R., Li, L., Xufei, M., Makino, S., Qian, G. and Boschma, R. (2018), Zoom In, Zoom out:
Geographical Scale and Multinational Activity. Journal of International Business Studies 49, 929-936.
..............................................................................................................................................................40
Spatial variation of location advantage at subnational, national and regional level.........................40
Global value chain (GVC) analysis.....................................................................................................40
Place, space and organization...........................................................................................................40
A global value chain model of spatial variations...............................................................................41
The way forward: spatial scales........................................................................................................43
Concluding remarks..........................................................................................................................43
W3+W4 - Crescenzi, R. and Iammarino, S. (2017), Global investments and regional development
trajectories: the missing links. Regional Studies, 51(1), 97–115...........................................................44
Introduction......................................................................................................................................44
Global firms’ networks and regional connectivity............................................................................44
Connectivity and global investment flows: spatial extent, nature and directionality...................44
Connectivity and regional economic development......................................................................45
Regions on the move: a broad-brush picture of regional connectivity through global investment
flows in Europe.................................................................................................................................47
Direction and change of FDI in and from the European regions...................................................47
Spatial extent and nature of FDI inflows in and from the European regions................................48
Connectivity and regional development trajectories± some initial insights.................................49
Global and regional interdependency: rethinking policy targets and strategies..............................49
W4 - Ascani, A. and Iammarino, S. (2018), Multinational enterprises, service outsourcing and regional
structural change. Cambridge Journal of Economics, 42 (6). 1585 – 1611...........................................51
Introduction......................................................................................................................................51
Background of the study...................................................................................................................51
Foreign multinationals, service outsourcing and regional structural change...............................51
Hypothesis development..............................................................................................................52
Data..................................................................................................................................................52
Foreign MNEs and service outsourcing in local labor markets.........................................................52
Multiplicative effects of foreign ownership......................................................................................52
Conclusions.......................................................................................................................................53
W4 - Ernst, D. and Kim, L. (2002), Global production networks, knowledge diffusion, and local
capability formation. Research Policy, 31(8–9), 1417–1429.................................................................55
Introduction......................................................................................................................................55
Driving forces and characteristics of GPN.........................................................................................56
Driving forces................................................................................................................................56

, Characteristics of GPN..................................................................................................................57
GPN and knowledge diffusion...........................................................................................................58
The categories of knowledge........................................................................................................59
Knowledge transfer mechanisms..................................................................................................59
Local capability formation................................................................................................................60
Concepts.......................................................................................................................................60
GPN as mediators of local capability formation............................................................................61
Conclusions.......................................................................................................................................63
W5 - Cortinovis, N., Crescenzi, R. and van Oort, F. (2020) Multinational enterprises, industrial
relatedness and employment in European regions. Journal of Economic Geography, 20 (5),1165–
1205......................................................................................................................................................64
Introduction......................................................................................................................................64
MNE spillover literature....................................................................................................................64
Ambiguity of MNE effects on domestic firms...............................................................................64
Inter-industry effects: buyer-supplier linkages and industrial relatedness...................................64
Heterogeneity in MNE effects.......................................................................................................65
Research setting...............................................................................................................................65
Conclusions.......................................................................................................................................65
W5 - Javorcik, B. S. (2004). Does Foreign Direct Investment Increase the Productivity of Domestic
Firms? In Search of Spillovers through Backward Linkages. The American Economic Review, 94(3),
605–627................................................................................................................................................67
Introduction......................................................................................................................................67
Vertical spillovers and their determinants........................................................................................67
Conclusions.......................................................................................................................................68
W5 - Resmini, L. (2019), Foreign Direct Investments, Global Value Chains and Regional Development.
In R. Capello, & P. Nijkamp (a cura di), Handbook of Regional Growth and Development Theories.
Revised and Extended Second Edition (pp. 218-238) Cheltenham : Edward Elgar Publishing Ltd........69
FDI-induced effects: a taxonomy......................................................................................................69
Do FDI-induced effects exist? Moderators of knowledge spillovers.................................................70
Firm-specific factors.....................................................................................................................70
Local context factors.....................................................................................................................72
The spatial dimension of FDI-induced effects: agglomeration and spatial spillovers....................73
FDI and global value chains (GVCs)...................................................................................................73
The emergence of GVCs................................................................................................................73
GVCs and knowledge spillovers: is this link still possible?............................................................74
W6 - Ascani, A., Bettarelli, L., Resmini, L. and Balland, P.A. (2020), Global networks, local
specialisation and regional patterns of innovation. Research Policy, 49 (8), 104031...........................75
Introduction......................................................................................................................................75

, Literature background......................................................................................................................75
Results..............................................................................................................................................76
Conclusions.......................................................................................................................................77
W6 - Crescenzi R., C. Pietrobelli and R. Rabellotti (2014), Innovation Drivers, Value Chains and the
Geography of Multinational Corporations in Europe. Journal of Economic Geography 14, 1053-1086.
..............................................................................................................................................................78
Introduction......................................................................................................................................78
The drivers of MNC investments......................................................................................................78
Empirical results...............................................................................................................................80
Conclusions.......................................................................................................................................81
W6 - Iammarino, S. and McCann, P. (2015). Multinational Enterprises Innovation Networks and the
Role of Cities. In: Archibugi, D. and Filippetti, A. (eds.) The Handbook of Global Science, Technology,
and Innovation, John Wiley & Sons......................................................................................................83
Introduction......................................................................................................................................83
Classical MNE theories: Hymer and Vernon on organizational and urban structures......................83
Power, control and geography.....................................................................................................83
Industry cycles and spatial shifts...................................................................................................84
The new context: a fast-changing world and the evolving MNE.......................................................85
MNEs and cities in the world............................................................................................................87
W7 - Comi, S., Grasseni, M., and Resmini, L. (2019), Judicial efficiency and the location of foreign
direct investment. Evidence from Italy. In P. Lattarulo, A. Omizzolo, F. Palermo, V. Provenzano, & T.
Streifeneder (eds.), Le regioni d'Europa tra identità locali, nuove comunità e disparità territoriali.
Milano : Franco Angeli..........................................................................................................................89
Introduction......................................................................................................................................89
Results..............................................................................................................................................90
Conclusions.......................................................................................................................................90
W7 - Crescenzi, R., Di Cataldo, M. and Giua, M. (2021) FDI inflows in Europe: does investment
promotion work? LSE Institute of Global Affairs...................................................................................91
Introduction......................................................................................................................................91
FDI promotion: rationale and impacts..............................................................................................91
Results..............................................................................................................................................91
Conclusions.......................................................................................................................................92
W7 - Juni Zhu, T., Aranda Larrey, Y. and Santos V.-J. (2015), What Do Multinational Firms Want from
Cities? Insights from Investment Promotion Intermediaries and Location Advisory Consultants.
Companion Paper 5, Report Competitive Cities for Jobs and Growth. World Bank, Washington.........94
Introduction and objectives..............................................................................................................94
Multinational firms and the investment lifecycle.............................................................................94
How location advisors help multinational firms narrow down the list of locations......................94

, Understanding the investment lifecycle.......................................................................................95
What do multinational firms consider when making decisions?......................................................95
What are the key promotion efforts adopted by cities in response to investors’ needs?................97
Conclusions.......................................................................................................................................98
Recommendations............................................................................................................................98
W8 - Barbieri, P., Boffelli, A., Elia, S., Fratocchi, L., & Kalchschmidt, M. (2022). How does Industry 4.0
affect international exposure? The interplay between firm innovation and home-country policies in
post-offshoring relocation decisions. International Business Review, 31(4), 101992.........................100
Introduction....................................................................................................................................100
Theoretical background and hypotheses development..................................................................100
Results............................................................................................................................................101
Discussion.......................................................................................................................................101
W8 - Butollo, F. (2021). Digitalization and the geographies of production: Towards reshoring or global
fragmentation? Competition & Change, 25(2), 259–278....................................................................103
New digital technology, production models and the division of labor...........................................103
Reshoring and offshoring effects of automation............................................................................103
Intra-regional production in the on-demand economy..................................................................104
Logistics 4.0: offsetting the advantages of geographical proximity?...............................................104
Fragmentation through modularization and platformization.........................................................105
Discussion and conclusion: digitalized manufacturing and reshoring.............................................106
W8 - Stapleton, K., & Webb, M. (2020). Automation, Trade and Multinational Activity: Micro Evidence
from Spain. SSRN Electronic Journal...................................................................................................107
Introduction....................................................................................................................................107
Conclusion......................................................................................................................................108

,W2 - Barba Navaretti, G. and Venables, A. (2006),
Multinational Firms in the World Economy, 1 ed.,
Princeton University Press.
Chapter 1 – Facts and issues
The general public and policy-makers around the world have mixed feelings about MNEs: they see
them as either welcome bearers of foreign wealth and knowledge or unwelcome threats to national
wealth and identity. Policy-makers want MNEs to invest in their country, take pride when their firms
rank high in Fortune’s list of the largest firms in the world, but are unhappy when national firms close
down domestic activities and set up foreign ones, or when foreign brands compete successfully with
national ones.

Negative aspects of MNEs:

- Are relatively large;
- Have competitive power in the market place and bargaining power in the policy-making
arena, particularly in smaller developing countries;
- Are global players who can circumvent national regulations and policies more easily than can
national firms;
- Are footloose, able to move activities between their plants at relatively low cost, removing
benefits as rapidly as they deliver them;
- Mass-produce standardized products, jeopardizing national product variety.

Positive aspects of MNEs:

- Often bring scarce technologies, skills, and financial resources;
- Are quick to take advantage of new economic opportunities and thus contribute to the
creation of national wealth;
- Are bound by international standards and market competition
- Often offer better employment conditions and product qualities than national firms.

MNEs are not just giant corporations like Microsoft or Coca-Cola. Investing abroad is a key element of
a MNE.



Multinationals: what are they and how are they measured?
Activities of MNEs are best measured using firm-level data such as the number of employees and the
size of sales, but these data are often not available.

Activities of MNEs are often measured using flows of foreign direct investment (FDI). FDI is an
investment in a foreign company where the foreign investor owns at least 10% of the ordinary shares
undertaken with the objective of establishing a ‘lasting interest’ in the country, a long-term
relationship and significant influence on the management of the firm.

Fact 1: FDI grew dramatically in the last 15 years of the 20 th century, far outpacing the growth of
trade and income, and then stabilized between 2001 and 2005.

- The period 1986-2000 saw an enormous growth of activity by multinational enterprises, as
measured by flows of FDI.
- Despite their rapid growth, FDI flows remain much smaller than trade flows.

, - The scale of MNEs and the role they play in the process of globalization is best gauged by
looking at their shares in economic activity.

Fact 2: FDI originates predominantly from advanced countries

- The predominant source of supply of FDI is an advanced country. Between 2002 and 2004,
90,8% of outward flows originated in an advanced country.
- The EU as a whole accounted for 71.2% of all outward stocks, a share that has risen sharply
partly because of the rise in intra-EU investments associated with the deepening integration
in the EU and following the creation of the Single Market in 1992.
- In the developing world, only the Asian countries supply a significant share of world flows by
the mid-1990s.
- Most of the difference between the advanced and developing countries is accounted for by
sheer economic size, ad the difference in outflows relative to GDP is perhaps less than might
be expected.

Fact 3: FDI goes predominantly to advanced countries, but the share of developing countries has
been rising

- Most of the FDI goes to the advanced industrial countries because MNEs often seek large and
growing markets.
- The increase of FDI flows to developing countries reflects the growing importance of FDI as a
source of financing of these economies.

Fact 4: Mergers and acquisition account for the dominant share of FDI flows, especially to high-
income countries

- The establishment of a foreign subsidiary may take place in two ways:
o As a greenfield investment, where a new plant is set up from scratch
o As a merger with or acquisition of an existing firm (M&A).
- The majority of FDI takes place through M&A activity rather than through greenfield
investments, and the share of M&A has increased steadily since the mid-1980s from 66.3% to
76.2% in the period 1998-2001.

Fact 5: Most FDI is concentrated in skill- and technology intensive industries

- The most noticeable trend in the sectoral distribution of FDI stocks in the OECD countries is
the increase in the share of services and the parallel decline of the primary sector. This
reflects the overall shift of world GDP from the primary sector and agriculture towards
services
- If we look at the distribution of world FDI inward stocks in 2003, the share of services is
59.8%, that of manufacturing is 33.3% and the primary sector accounts for the remaining
share of 6.9%.
- The broad sectors in which the presence of MNEs is greatest are characterized by:
o Large investments in R&D
o Large share of professional and technical workers
o The production of technically complex or differentiated goods

Fact 6: MNEs are larger and sometimes more productive than national firms

- MNEs are generally large companies compared with national firms, both in home and host
countries. Foreign subsidiaries of MNEs are on average larger than national firms in host

, economies. The home activities of MNEs are also, in general, larger than those of national
firms with no foreign subsidiaries.
- MNEs tend to operate in more capital-intensive sectors.
- Foreign-owned subsidiaries are more productive than firms with no foreign affiliates.

Fact 7: Multinational firms are increasingly engaged in international production networks

- Vertical specialization = countries’ production of different stages of a good and the
consequent trade and intermediate products.
- Trade in intermediaries accounted for 30% of the growth of total exports of OECD countries
between 1970 and 1990. Much of this trade takes place within multinational firms.



The issues
Issue 1: Why do firms become multinational?

- Two distinct aspects to multinationality:
o Geographic dispersion of the firm’s activities. MNEs have operations in many
countries, although the nature of these operations varies widely, from raw materials
processing to final product assembly
o Concentrated ownership or internationalization of these activities. Multinationality
occurs when the foreign activity is not outsourced to a local firm, but instead
undertaken by a subsidiary of the firm itself.

Issue 2: Why do MNEs go to some countries and not to others?

- National legal systems. A legal system that protect intellectual property rights might create
confidence in the use of independent subcontractors, while in the absence of good
protection the firm might keep activity in-house.
- Market access. Access to a large market is likely to raise the potential profitability of
investments, but it will do so for local firms as well as for multinationals.
- Distance between parts of the firm’s operation . However, local production is a way of
overcoming trade costs in supplying remote markets, but such markets may also face high
costs of imported inputs and difficult communications and management problems.
- Availability of cheap factors of production . This may attract foreign investors, but not
necessarily if local workers are unskilled and unreliable and the local market is small.

Issue 3: What is the effect of MNEs on host economies?

- This cannot be unanimously answered. It differs per country, firm, industry, and more.
- Questions to be considered:
o In the absence of an inward investment, would the country instead have been served
by imports or local production?
o The potential channels of welfare gain need to be identified, bearing in mind that
investments that simply crowd out similar local activities yet no net economic gain.
What are these channels?
- In the product market, the entry of an MNE might simply crowd out national firms,
competing away their market shares. However, benefits can rise through several channels:
o The investment makes the market more competitive, eroding monopoly power of
local firms

, o The investment might raise the productivity of local firms through some sort of
spillover effect. This will happen if increased competitive pressure induces firms to
reduce internal inefficiencies, or if there are direct knowledge spillovers or learning
effects.
- In the labor market, the value of job creation by an FDI project depends on what would have
happened in the absence of the project. On the one hand, it may make the labor market
more competitive, reducing monopoly power of trade unions. On the other hand, if it creates
volatility and (uninsurable) uncertainty, it will be welfare-reducing.
- It may also be the case that the total FDI inflow to an economy is large enough, relative to
the rest of the economy, to change prices, bidding up wages and improving the economy’s
terms of trade. In this case, there can be gains even if there are no imperfections or
externalities in the host economy.

Issue 4: What is the effect of MNEs on home economies?

- Stakeholders typically gain, as the investment is made to raise profits.
- Direct employment effects are negative, as activities are transferred to other countries.
- The full impact on the level of home country employment depends on the benefits that the
firm receives from the investment.
o If the relocation lowers the firm’s costs, then it may lead to an expansion of its
overall production, this causing the home country employment levels to be higher
than they otherwise would have been. The firm may also benefit from technology
transfer and from improved access to foreign markets.
- FDI may also change the skill composition of employment, and perhaps also the stability of
employment.
- MNE activity has led to a deterioration of employment conditions, particularly for unskilled
labor in advanced countries.

Issue 5: What are the implications for policy?

- The presence of MNEs may change the effectiveness of domestic policies and may create
incentives for new policy measures. This is illustrated by corporate taxation.
o MNEs may be able to circumvent tax policy by relocating their activities to lower tax
countries. Even if they do not relocate, they may be able to engage in transfer pricing
which moves their reported earnings in operations based in low-tax countries.
o Trade policy also operates differently in the presence of MNEs, as rents from
protectionist trade policies get transferred to foreign shareholders rather than
national citizens.
o Since they span jurisdictions they may be less accountable to national policy makers
and regulators.
- Policies may be designed explicitly to attract (or discourage) MNE activity.
o Policy competition between jurisdictions raises the question of international policy
coordination.
 Competition to give subsidies may be undesirable
 Competition to provide a better legal framework may be beneficial
 International policy coordination could also be useful in order to harmonize
and ensure transparency of a country’s regulations governing FDI and to
create commitments against the adoption of domestic policies which are
distorting and driven by interest groups.

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