Firm Performance and the Geography of FDI: Evidence from 46 Countries

Abstract

The literature on the link between multinationality and firm performance has generally disregarded the role of geography. However, the geography of FDI may matter, particularly now that globalisation has increased the heterogeneity of overseas investments. Moreover, although the range of countries that conducts FDI has widened considerably, the literature still tends to focus on the case of a relatively small number of US firms. In contrast, our paper draws on firm-level data covering over 16,000 multinationals from 46 countries and allows for different effects upon the performance of the multinational firm depending on the level of development of the host economy. In our results, we find a clear positive and linear relation between multinationality and firm performance. However, investment in developing countries is associated with larger and increasing effects on performance than in the case of investment in developed countries. Overall, our results suggest that the net gains for multinationals from greater geographical diversification have not yet been fully met.Multinationality, Firm Performance, Location Choices