The MNE investment location decision: Some empirical evidence

Factors governing MNE investment are typically divided into three groups‐infrastructural variables, location‐specific risk factors and government policy variables. The first objective of this paper is to assess the influence of these factors on MNE location decisions. The second objective is to test whether government participation in location tournaments (whereby local governments offer incentives to MNEs to influence their location decisions) is worthwhile. Arthur (1986,1990) points out that such participation is worthwhile if government policy has irreversible effects that persist after policy is withdrawn. In the estimation of the model, neither risk nor infrastructural factors are found to have a significant effect on the MNE investment location decision. However, there seems to be some evidence indicating that past investment decisions tend to have irreversible effects. Thus, government participation in location tournaments may be worthwhile.