Marshall vs Jacobs agglomeration and the micro-location of foreign and domestic firms

Abstract

This paper examines the factors determining the subnational geographic location of the investments of multinational enterprises (MNEs). Building on the tension between the costs and benefits that agglomeration confers on firms, we compare and contrast Marshallian and Jacobian agglomeration mechanisms to understand the micro-location patterns of domestic and foreign firms. We test these ideas on a dataset of 387.000 workplace-year observations located across 93 municipalities in Denmark. The results show that while agglomeration is systematically related to both foreign and domestic location patterns, some of these relationships vary across agglomeration types and across subsamples of domestic and foreign workplaces. We also demonstrate the importance of controlling for global connectivity, which may otherwise confound these relationships.