their Geographical Neighbourhood

Andrea Ascani, Riccardo Crescenzi and Simona Iammarino
to undertake operations in sites endowed with location-specific advantages (L).
Consequently, the combination of (O), (L) and (I) advantages justifies MNEs’
existence and their ability to maximize their productive efficiency while
minimising the impact of uncertain and imperfect markets on their operations.
However, whilst the interactions between ownership and internalisation
advantages have been extensively investigated (see for example the seminal
work by Buckley and Casson, 1976; Teece, 1977; Rugman, 1981; Hennart, 1982),
the study of location advantages has suffered from a number of conceptual and
empirical constraints, among which the problematic conceptualisation of space
and the severe restriction in data availability (McCann and Mudambi, 2005;
Iammarino and McCann, 2013).
In the traditional empirical economics literature attention has been directed to
factor endowments in a broad sense, including, among other location drivers,
physical infrastructure (e.g. Coughlin et al., 1991), tax differentials (e.g. Devereux
and Griffith, 1998), policy instruments (Basile et al., 2008), and labour costs (e.g.
Liu et al., 2010). Urban and regional economics contributions have focused on
agglomeration economies, spatially bounded externalities and the geographical
concentration of economic activity as drivers of MNEs’ location behaviour (e.g.
Head et al. 1995; 1999; Guimarães et al., 2000; Crozet et al., 2004; Disdier and
Mayer, 2004; Devereux et al., 2007; Mayer et al. 2010; Hilber and Voicu, 2010;
Spies, 2010). Furthermore, empirical studies within the New Economic
Geography have shown that not only MNEs tend to replicate the location
decisions of previous firms with similar attributes, but agglomeration effects also
act through demand linkages (Head and Mayer, 2004) as well as specialised
inputs supply (LaFountain, 2005).
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