Agglomeration Effects and the Location of Foreign Direct Investment - Evidence from French First-Time Movers

This paper analyzes the location choice determinants of French first-time in- vestments in Europe, North America and North Africa. Firm locations are ex- amined on two geographical scales, the national and regional level. The final sample comprises 307 location decisions in 27 countries and across 45 regions. Both, location- and firm-specific variables are used for analysing the invest- ment strategy of French firms. The results show that higher market demand and cultural proximity to France increase the likelihood of a particular loca- tion to be chosen, whereas higher labour cost and a larger distance between a foreign location and the headquarters deter FDI investments. Manufacturing and older companies are more likely to establish their first subsidiary in East- ern Europe. Furthermore, this study examines the extent to which French in- vestors choose foreign locations that already host a significant number of French firms. The results obtained from regressions with various absolute and relative agglomeration measures suggest that French investors are rather at- tracted by firm cluster in general, or by the unobserved factors that led to the agglomeration in the first place, than by any nation-specific firm cluster.