Location and Intra-firm co-location of MNEs’ activities: Does geographical proximity always matter?

This paper investigates the role of geographical and temporary proximity in the location and co-location decisions of manufacturing activities by foreign multinational enterprises (MNEs). Empirical analysis shows that foreign MNEs co-locate their new manufacturing plants with their plants already operating in the same manufacturing activity, while geographical proximity exerts a much weaker role when the latter operates in services activities. This is especially true in the case of knowledge-intensive business services, where the travelling and meeting of professionals allows temporary proximity. Moreover, a spatial econometric extension of the analysis confirms a geographical decay effect for intra-firm co-location with activities located in contiguous provinces.