Multinationals and Economic Geography: Location, Technology and Innovation

489 Pages·4.661 MB·English

by  Iammarino S., McCann Ph.

Multinationals and Economic Geography

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Multinationals and
Economic Geography
Location, Technology and Innovation
Simona Iammarino
Professor of Economic Geography, London School of
Economics and Political Science, UK
Philip McCann
Professor of Economic Geography, University of Groningen,
The Netherlands and Professor of Economics, University of
Waikato, New Zealand
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
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© Simona Iammarino and Philip McCann 2013
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
William Pratt House
9 Dewey Court
Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2012949719
This book is available electronically in the ElgarOnline.com
Economics Subject Collection, E-ISBN 978 1 78195 479 9
ISBN 978 1 78195 478 2 (cased)
978 1 78195 487 4 (paperback)
Typeset by Servis Filmsetting Ltd, Stockport, Cheshire
Printed and bound by MPG Books Group, UK
3
0
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Contents
1 Introduction: multinational enterprises, innovation and
geography in todays’ globalized world 1
PART I MULTINATIONALS, LOCATION AND
INNOVATION: FOUNDATIONS AND
EXTENSIONS
2 Old and new(er) theories of multinational enterprises: selected
perspectives and the search for location 33
3 Firm location behaviour in theory: extensions to multiplant
and multinational firms 68
4 The sources of innovation: the firm and the local system 136
PART II MULTINATIONALS AND THE CHANGING
ECONOMIC GEOGRAPHY OF GLOBALIZATION
5 Multinationals, variety of geographies and evolution 193
6 Globalization and multinationals in a historical process 244
7 Multinationals, connectivity and global cities 284
8 Multinationals, emerging economies and the changing
economic geography 320
9 Conclusions: review of the arguments and implications for
future research 353
Bibliography 379
Index 457
v
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1. Introduction: multinational
enterprises, innovation and
geography in todays’ globalized
world
1.1 WHAT THIS BOOK IS (AND IS NOT) ABOUT
The existence and behaviour of the multinational enterprise (MNE) has
now been analysed for over half a century by economists, international
business and management researchers, behavioural and organizational
theorists, as well as business historians and sociologists. In spite of the
diversified theoretical roots and backgrounds of these different tradi-
tions, two main sets of questions have been commonly addressed by social
scientists. The first set relates to the behavioural determinants, motives,
and strategies of multinational firms, and includes questions such as: why
do firms become multinational? where do they locate their cross- border
activities? how do they undertake and organize their multinational pro-
duction and transactions? The second set of questions relates to the wider
effects of a multinational presence, and includes questions such as: what is
the impact on the home economy? what is the effect on the host economy?
and what is the effect on the multinational firm itself?
These two broad lines of inquiry have been further decomposed into
a variety of related, but differentiated, sub- questions. What is apparent,
after more than fifty years of systematic research on multinationality, is
that there is as yet no unified or dominant theory of the MNE. A plethora
of theoretical approaches, conceptual frameworks and speculative expla-
nations have been put forward, each of which is developed within the
boundaries and assumptions inherent to these diverse analytical back-
grounds. Such a multidisciplinary scholarly attention is not surprising, as
multinationality is per se a multidimensional, multifaceted phenomenon,
and the heterogeneity of facts, activities and behaviours to be explained
are not easily fitted within a single conceptual framework. In this sense,
the study of MNEs is no different from that of business organizations
generally: the study of the firm as an economic organization and a social
1
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2 Multinationals and economic geography
institution is not, and cannot be, encompassed in a single governing theo-
retical scheme.
The aim of this book is not to propose a new theory of the MNE or an
alternative set of explanations of MNE behaviour. Rather, our objective is
to bring into focus one particular dimension of MNE behaviour and activ-
ity which has been under- researched in comparison with other aspects of
the MNE; namely the geography of the multinational enterprise. Indeed,
the intersections of the study of MNEs with both geography and innova-
tion are nowadays widely recognized as being very important, but they are
still seriously underexplored.
In this book we work with a set of selected theories and conceptual
frameworks which, in our view, together help explain much of the spatial
behaviour of the modern MNE. These theories and frameworks explain
the spatial behaviour of the MNE with reference to both the internal
processes of the firm’s decision- making and operating structures, and also
with reference to its connections and interactions with the outside world,
and thus with geography. In the international business and management
literature the giant, multidivisional, highly integrated multinational firm
has been put at the centre of the analysis, and this is often treated as an
abstract type of economic agent of unique importance. However, it is
more useful, for our purpose here, to follow the view of Edith Penrose and
treat the MNE as just a special case of the general firm, or even better, as
a stage in its evolution, with the stage – being multinational – itself subject
to change over time. Indeed, the incredible pace with which the number
of internationalized and network- connected firms has grown in the recent
years seems to indicate that many large, and even medium and small sized
companies, are going through a metamorphosis that will lead to different
paths of openness and interdependence, and eventually to different forms
of multinationality itself (Box 1.1).
In marked contrast to the international business and management
literatures, other fields such as innovation studies and the economics
of technological change have mostly considered the uni- national, uni-
located, mono- activity firm as the main object of the analysis, thereby
marginalizing the MNE in the investigation of causes and effects of learn-
ing and innovation processes. Likewise, traditional economic geography
and location theory, and even the most recent developments in both new
trade theory and new economic geography, have tended to concentrate on
the activities carried out by the multinational firm, mostly defined, if not
exclusively so, in terms of foreign direct investment (FDI). Analyses here
have tended to emphasize the firm’s location choices for plants or estab-
lishments in the same area, or alternatively the firm’s decisions to replicate
production capacity in other far away sites, without paying much atten-
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Introduction 3
BOX 1.1 SOME FACTS AND FIGURES: THE
GROWING NUMBERS OF MNEs
At the end of the 1960s there were approximately 7000 MNEs,
which were accounted for almost entirely by just fifteen coun-
tries. By 2006, there were an estimated 78,000 MNEs in the
global economy with some 780,000 foreign affiliates (UNCTAD
2007). Over the last few years the number of MNEs in the global
economy has been increasing at a rate of 1000–2000 per annum,
while the number of foreign affiliates has risen by 10,000–20,000
per year. The numbers of MNEs in 2006 represented a 23 per
cent increase with respect to the same number in 2000, and a
13 per cent increase in the number of foreign affiliates (UNCTAD
2007).
As well as employment, over recent decades the levels of
output and trade which are associated with multinational firms
have also increased much more rapidly than the growth of global
trade. Foreign direct investment has been growing at twice the
speed of world trade, which itself has grown at twice the rate of
world income. The result is that foreign direct investment grew
by almost six-f old between 1970 and 1999 (Bobonis and Shatz
2007), with 30–40 per cent of US trade currently accounted for
by intra-f irm trade flows (Lai and Zhu 2006). The 78,000 multina-
tional firms operating in the global economy in 2006 accounted
for an estimated $4.8 trillion in value-a dded and $4.7 trillion in
exports (UNCTAD 2007). In order to get a sense of the relative
importance of multinational investment, in 2006 the global GDP
was over $45 trillion (World Bank 2007) and global exports were
$14.1 trillion (UNCTAD 2007): MNEs therefore accounted for
over 10 per cent of global GDP, and approximately one third of
global exports, as well as 12.6 per cent of global domestic fixed
capital formation (UNCTAD 2007). The 780,000 foreign affiliates
of MNEs also employed an estimated 73 million workers. This
number has not only tripled since 1990 (UNCTAD 2007), but
increased by some 20 million from 53 million (UNCTAD 2003)
just since 2002. The total number of workers employed in foreign
affiliates now represents around 3 per cent of the global work-
force (UNCTAD 2007). Recent estimates (Spence 2011) suggest
that 31 per cent of US economic growth since 1990 is accounted
for by MNEs.
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