The explosion of multinational activities in recent decades is rapidly transforming the global landscape of industrial production. But are the emerging clusters of multinational production the rule or the exception? What drives the offshore agglomeration of multinational firms? Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. Our analysis shows that the emerging o¤shore clusters of multinationals are not a simple reflection of traditional industrial clusters. Location fundamentals including market access and comparative advantage and under-emphasized agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals' offshore agglomeration.
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This paper was revised on November 21, 2011
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