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Does It Matter Where Countries Are? Proximity to Knowledge, Markets and Resources, and MNE Location Choices

Baruch College, City University of New York, New York, New York 10010
Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Baruch College, City University of New York, New York, New York 10010
lilach_nachum{at}baruch.cuny.edu
szaheer{at}umn.edu
shulamith_gross{at}baruch.cuny.edu

We suggest that the proximity of a country to other countries is a factor that affects its choice as a multinational enterprise (MNE) location. We introduce the concept of a country's proximity to the global distribution of knowledge, markets, and resources, and frame this concept as a function of both geographic distance and the worldwide spatial distribution of these factors. We test our location model on a data set comprising 138,050 investments undertaken by U.S. MNEs worldwide. Our findings show that the proximity of a country to the rest of the world has a positive impact on MNEs choosing that country as a location. Proximity to the world's knowledge and markets are stronger drivers of location choice than is proximity to the world's resources, after accounting for the country's own endowments. Larger firms are able to benefit more from remote locations than smaller firms are.

Key Words: Multinational Enterprise location choice; countries' proximity to the world; distance; proximity to knowledge; markets and resources; sandwich estimators
History: Received: March 5, 2005;