Location decision of heterogeneous multinational firms

We examine how multinational firms with heterogeneous total factor productivity (TFP) self-select Into different host countries Both aggregate- and firm-level estimates suggest that more productive French firms are more likely than their less efficient competitors to invest in relatively tough host countries Countries with a smaller market potential, higher fixed costs of investment or lower import tariffs tend to have higher cutoff productivities and attract a greater proportion of productive multinationals. This self-selection mechanism remains largely robust when we control for unobserved firm and country heterogeneity and address potential TFP endogeneity (C) 2009 Elsevier B V All rights reserved