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Agglomeration, catch-up and the liability of foreignness in emerging economies

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Abstract

Given the importance of location choice for accessing knowledge, we examine the location choices of domestic and foreign firms in an emerging economy after market liberalization. In the literature, co-locating with other firms has been associated with agglomerative economies and knowledge spillovers that lower the liability of foreignness for foreign firms. However, as domestic firms are trying to upgrade their capabilities, or “catch up,” they may also prefer locations with other firms, as these locations have knowledge spillover potential. We develop competing hypotheses to test the extent to which catch-up motivations affect location decisions. Examining the location choices of 501 domestic and 68 foreign firms for their R&D laboratories in India during 2005–2010, we find that domestic firms exhibit a stronger preference for cities with high agglomeration than foreign firms do. This shows that upgrading motivations dominate location choice during periods of accelerated catch-up in emerging economies.

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Notes

  1. We thank Special Issue editor Ram Mudambi for suggesting this term.

  2. More specifically, DSIR industry categories are the following: (1) chemical and allied industries; (2) electrical and electronics industries; (3) mechanical engineering industries; (4) agricultural and food processing industries; (5) processing industries (metallurgical, refractories, paper, cement, ceramics, and leather); (6) software; (7) mining and oil extraction; and (8) other.

  3. All firms in India must register and provide a registered office address.

  4. The Institute of Competitiveness, India, is a local Indian affiliate of the Institute for Strategy and Competitiveness at Harvard Business School.

  5. The India Competitiveness Report also ranked cities’ administrative infrastructure, although the correlation for that measure was 0.34.

  6. This coding was done by a person of Indian origin who was also involved in the coding in Zaheer et al. (2009). Therefore this coding is entirely consistent with prior work in this area.

  7. We thank an anonymous reviewer for pointing this out to us.

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Acknowledgements

We would like to thank Special Issue Editors Ram Mudambi and Sjoerd Beugelsdijk along with two anonymous reviewers for their insightful comments and suggestions, as well as participants at the JIBS Special Issue Conference and Strategic Management Society Conference (2012), including comments from Srilata Zaheer. We also thank Pranav Mohan Sharma, Yasin Celik and Brandon Hoyer for their research assistance on this project. Financial support from the Center for Emerging Markets at Northeastern University, and the Bureau of International Education, US Dept. of Education, is gratefully acknowledged. All errors are our own.

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  1. D’Amore-McKim School of Business, Northeastern University, Boston, USA

    Anna Lamin & Grigorios Livanis

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  1. Anna Lamin
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Correspondence to Anna Lamin.

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Accepted by Ram Mudambi and Sjoerd Beugelsdijk, Guest Editors, 20 February 2013. This paper has been with the authors for three revisions.

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Lamin, A., Livanis, G. Agglomeration, catch-up and the liability of foreignness in emerging economies. J Int Bus Stud 44, 579–606 (2013). https://doi.org/10.1057/jibs.2013.14

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