Geography Reference
In-Depth Information
based on an agglomeration-spillovers model. Some apparently more
sophisticated work (Devereux et al. 2000; Barrell and Pain 1999) has fallen
into this trap, by simply assuming that groupings of FDI investments by
MNEs within an individual country must be clear evidence of agglomera-
tion economies, irrespective of the geographical location and spatial scale
of either the country or its internal regional and urban system. It appears
that many of the mistakes made by the original international business lit-
erature are being repeated when it comes to the modern empirical analysis
of the location behaviour of MNEs.
There is another aspect in which the industrial complex model is also
particularly important when considering the MNE location behaviour. In
a context where knowledge transactions can be largely defined (and also
protected) via legal contracts and where both the production function and
also the spatial transactions costs relationships of the firm are largely pre-
dictable and stable over the medium term, then the Weber model and the
logistics-costs model (McCann 1993, 1997) become particularly relevant.
The reason is that in order to move away to another location more distant
from the markets and suppliers in search of lower input factor prices, the
production function relationships and the spatial transactions costs incurred
must be predictable and stable over the medium to long term. Otherwise the
opportunity costs of moving away to more distance locations become too
high, because the risks involved become so great. This is actually the con-
verse of a point made by Scott (1988) who argued that where firms operate
in an highly unstable trading environment without many formal legal
and organizational safeguards, and here the extreme case are firms in the
informal sector, then they are forced to cluster together. As such, the more
predictable, stable, formal and protected are both the production function
and transactions costs characteristics of the firm, the more readily will a firm
relocate in order to take advantage of spatial costs variations.
It is not possible to have a multiplant spatial structure in which the
relationships between the firm's individual establishments are of a tacit or
informal nature. Moreover, this argument is applicable to both MPDEs
and MNEs. However, multinational firms are the most powerful example
of firms which formalize and protect their knowledge and transactional
features precisely in order to foster their geographic mobility across coun-
tries. As we will see in this topic, the relationships between the individual
MNE establishment and its immediate locality may have elements of any
of these three types of spatial-industrial arrangements described above,
or indeed any of the four types described below. Yet, while the industrial
complex is a very common organizational form at the establishment level,
the increasing autonomy and capabilities of MNE affiliates and subsidi-
aries suggests that both of the other two forms are also becoming more
