Economic Geography and the Location of TNCs: Financial and Professional Service FDI to the USA
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Geography
and
the
of
Financial
and
Professional
TNCs:
Service
Location
t he
FDIto
USA
LilachNachum* CAMBRIDGEUNIVERSITY
This paper attempts to examine theoretically and empirically the explanatory power of concepts drawn from economic geographyfor the explanation of the location of TNCs.It combines concepts from economic geography and international business theoriesin a model that seeks to explain the location of Transnational INTRODUCTION
The effortsof internationalbusiness scholars to identify the characteristics affectingthe location choices of TNCs have traditionallybeen dominatedby referenceto the relative abundanceof certain immobile assets in particular locations. This was an application to foreign direct investment (FDI)of the logic of classical and neo-classical tradetheorists, who sought to explain the patternsof internationaltradewith reference to the comparative advantages that arise from the resources
Corporations(TNCs), and tests the model on financial and professional service FDI to the US. The findings suggest a need to extend the conventionallocationmodel of international business by acknowledging the processes taking place among finns located in geographicproximity.
abundant within the boundaries of particular countries. Later developments have extended the concept of comparative location advantage from the mere abundance of tangible immobile factors of production to include intangible assets such as culture, human capital and institutional frameworks. But the focus of explanations for the location of TNCs has remained the differences between countries and regions in terms of specific conditions and characteristics (this approach is summarised in great detail in Dunning, 1993).
*Lilach Nachum, Senior Research Fellow, CambridgeUniversity, ESRCCentre for Business Research.She is currentlyleading a researchprojecton the internationalcompetitiveness of UK-and foreign-ownedfinancial service firmsin the City of London. She is the authorof The Originof the InternationalCompetitivenessof Firms:TheImpact of Ownershipand Location in Professional Service Industries (EdwardElgar,1999). I wish to express my gratitudeto Dr. D. Keeble for introducing me to the economic geography discipline and forvaluable comments on earlierdrafts.I would also like to acknowledge a most illuminating discussion with Dr. F. Wilkinson of some of the central issues addressed in this paper. Both are at the ESRCCentrefor Business Research,CambridgeUniversity. JOURNAL OF INTERNATIONALBUSINESS STUDIES, 31, 3 (THIRD QUARTER 2000):
367-385
367
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ANDTNCs LOCATION ECONoMicGEOGRAPHY
Research in economic geography, which represents a somewhat different way of thinking aboutthe organisationof economic activity, has emphasised the advantages accruing to firms located in geographicproximity as the majorfactor explaining their location patterns. This research has shown
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