The Institutional Determinants of Location Choice: Agglomeration in the Global Semiconductor Industry

Although scholars have examined antecedents to agglomeration, we understand less than we should about the impact of institutional environments. We theorize that characteristics of a country’s institutional environment encourage firms to agglomerate. To test our hypotheses, we examine the location pattern of 948 plant investments made by 274 firms across 29 countries in the global semiconductor industry. Findings reveal that agglomeration patterns vary across countries. Specifically, firms prefer to agglomerate in collectivist, and politically and economically uncertain, countries. The results suggest that the institutional environment impacts a firm’s incentives to agglomerate, and that the decision to agglomerate is therefore context-dependent.