Pattern of interdependence of aggregate FDI from the same source country

Abstract

This paper explores the possibility that monitoring resources explain the clustering in space of aggregate FDI from the same source country. Theoretically, the paper shows that independently of any institutional incentive setting, costly monitoring incites headquarters to locate new plants where monitoring resources are relatively cheap. Clustering of firms from the same source country is therefore interpreted as information sourcing. Empirical application finds that the importance of geographic neighbors to the location choice of US non-manufacturing FDI in Europe conform to the advanced hypothesis.