Ascani, Andrea
(2015)
Aspects of multinational enterprises in the global economy: location, organisation and impact.
PhD thesis, London School of Economics and Political Science.
Abstract
The role played by Multinational Enterprises (MNEs) in the global economy is becoming increasingly relevant as they shape sectorial, regional and national trajectories of economic development through their cross-border activities and behaviour. This thesis investigates how the characteristics of MNEs, their activities and location-specific attributes interact with each other and shape both behaviour and choices of MNEs and the impact of foreign direct investment (FDI). The thesis is structured into a general Introduction, aimed at guiding the reader throughout the thesis and providing a broad conceptual framework, and three analytical Parts focusing on (i) MNE greenfield investment location strategies, (ii) MNE selection decisions in cross-border acquisitions and (iii) impact of MNE operations on host regions.
In Part I, the location behaviour of MNEs, in the light of the specificities of the recipient economies, is carefully analysed. In particular, the three Chapters of Part I investigate the location behaviour of European MNEs in a set of European Union (EU) neighbouring countries over the period 2003-2008, by focusing on different aspects of location strategies. In Chapter 1, an initial descriptive analysis is produced in order to account for the general determinants of MNE location behaviour. This chapter, therefore, offers a quantitative assessment of the main drivers of FDI in the EU neighbourhood and it also explores sectorial and functional dynamics. Chapter 2 deepens the study of MNE location behaviour by developing both a quantitative and a qualitative analysis of FDI determinants based on the experience of Italian MNEs operating in the EU neighbourhood. This mixed-methods approach allows integrating the general insights emerging from the analysis of the broad group of Italian investors with the in-depth case studies of two specific large Italian MNEs with a strong presence in EU neighbouring countries in recent years. Subsequently, in Chapter 3, particular attention is devoted to the empirical analysis of the spatial distribution of MNE activities in relation to differences in terms of economic institutions of the host locations. This specific line of research is based on an innovative quantitative approach to the study of MNE location strategies in terms of greenfield FDI in the sample of neighbouring countries of the EU. In particular, Chapter 3 focuses on the heterogeneous location strategies of MNEs with respect to location attributes. Overall, the main findings of Part I of the thesis not only suggest that the traditional drivers of FDI emphasised in the existing literature, such as market access and cost-saving factors, still represent relevant elements for MNE behaviour, but it is also highlighted that MNE specificities are crucial to understand investment choices and that industry-wide differences can influence both entry modes and the location decisions of MNEs. The most innovative contribution of Part I, however, is related to Chapter 3, where the quantitative analysis of MNE location behaviour by means of Mixed Logit models suggests that MNEs have heterogeneous preferences with respect to location characteristics, especially economic institutions. This indicates that MNE strategies are highly diverse and the previous quantitative literature may have underestimated the complexity of the interaction between MNEs characteristics and location attributes.
After exploring the determinants of MNE location strategies, Part II of the thesis aims at studying the selection decisions of MNEs engaging in cross-border acquisitions. This represents a very novel area of enquiry and the objective of Chapter 4 is to quantitatively assess the relevance of target firms’ attributes in shaping MNE acquisition choices in the framework of their international organisation of production. In particular, the aim of this Chapter is to assess whether acquisition decisions are associated to the search of strategic assets or to market access considerations. Results suggest that, in the sample of EU15 firms under analysis in the period 1997-2013, the latter motivation tends to be more relevant. This is in line with market access motives operating at the firm level, differently from other studies on FDI and acquisitions focusing on the industry- or country-wide level of analysis. Evidence in favour of
strategic-asset seeking strategies of MNEs acquiring European firms, instead, remains weak. Therefore, this Chapter highlights that domestic firms engaging in the generation of successful business linkages within or across national markets can represent a valuable target for MNE cross-border acquisition decisions.
Finally, building on the previous sections on the determinants of location choices and selection patterns in cross-border takeovers, Part III of the thesis focuses on the impact of FDI on recipient areas in terms of their innovation potential. Chapter 5 is developed as a quantitative analysis with the specific objective of isolating the causal effect of MNE operations on the innovative performance of host regions. This is investigated by employing NUTS-3 level data on Italy for the period 2001-2006. The empirical analysis is supported by the implementation of an Instrumental Variable (IV) strategy in order to tackle potential endogeneity bias in the estimation of FDI-induced spillovers. This Chapter contributes to the existing debate by focusing on the geographical level of FDI externalities, whereas the great majority of past studies mainly investigate industry-wide effects. Results suggest that the presence of FDI in a location contributes to fostering the innovative performance of the local economy. Therefore, MNEs can be seen as carriers of superior knowledge and new organisational practices that spill over space to the benefit of domestic firms. In a policy-making perspective, this provides a clear rationale for the attraction of FDI as an international channel for knowledge sourcing.
The three Parts of the thesis are strongly complementary as the strategies of MNEs in Part I and II in terms of FDI (i.e. greenfield and acquisitions) are integrated with an assessment of the impact that corporate activities have on recipient economies in Part III. Although the broad conceptual background to the work as a whole is provided in the general Introduction of the thesis, each Chapter has a section devoted to a dedicated and specific review of the literature. Moreover, the thesis also contains an acknowledgement of the limitations of the study, which is provided in the concluding sections of each Chapter, as well as a discussion of the contributions and implications that the analyses developed in the various Chapters have for academic research and policy-making.
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