their Geographical Neighbourhood

Location Strategies of EU-15 MNEs in the European Neighborhood
4. Methodology
4.1. Capturing MNEs heterogeneous preferences for economic
institutions: Mixed Logit Models
Following McFadden (1974), the great majority of the empirical literature on
investment location decisions implies that MNE strategies are fundamentally
driven by individual maximization choices. In other words, it is thought that
MNEs select locations on the basis of the expected utility or profit that each site
may yield on the basis of the characteristics of the host economies. Conditional
Logit (CL) models allow exploring the effect of alternative-specific attributes on
the probabilities that firms select a particular location among the set of
alternatives. The main assumption in the CL is the Independence of Irrelevant
Alternatives (IIA), which implies that the error term εij is independent across
locations.
An extension of the analysis of MNE location behaviour is developed by
implementing a Mixed Logit (MXL) model. This is basically a generalization of
the standard logit and offers the possibility to relax completely any restriction
associated with the IIA. The existing literature on MNE location choices has
rarely employed MXL, despite the advantages associated to it. Notable
exceptions are relatively recent and include works by Defever (2006; 2012),
Cheng (2008) and Basile et al. (2008). The present analysis implements a randomcoefficient
derivation of the MXL, in line with Defever (2006; 2012) and Cheng
(2008), with the aim of analysing whether MNEs have heterogeneous preferences
over location attributes when they strategically select a location for greenfield
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