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

We suggest that the proximity of a country to other countries is a factor that affects its choice as an 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 dataset comprising 138,050 investments undertaken by US 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 are smaller firms. This paper is the result of truly joint work, to which the three authors contributed equally. An earlier version of this paper was a finalist for the Temple/AIB Best Paper Award, 2006.