A note on agglomeration and the location of multinational firms

A classification of the locational patterns of firms (with economies of scale and scope present) is outlined in order to shed light on the location of the multiplant, multinational firm, which is driven by three forces: spatial economies of scale and scope that follow from the co-location of different activities sharing a common fixed input; transportation costs on the final good; and factor-mobility costs. We conclude that the single-plant firm prevails when spatial economies of scale and scope are pronounced, while multi-plant firms emerge when spatial economies of scale and scope are weak. However, the vertical multinational firm is to be found when transportation costs on the finished good are low, whereas the horizontal multinational firm emerges when these costs are high. The vertical multinational thus appears as the limit in the evolution of the market structure for most consumer goods. Copyright RSAI 2005.