Geographic clustering and outward foreign direct investment

This study addresses an important neglected question: To what extent do geographic clusters promote outward foreign direct investment (ODI)? We find evidence that clusters do promote ODI and so support Porter’s argument that advantages gained in clusters can be the foundations of successful internationalisation. Digging deeper, we find that certain cluster incumbents promote more ODI than others, with more experienced firms and firms with stronger resource bases accounting for more ODI. We also find that firms located in clusters within major global nodes/cities engage in more ODI. Finally, we find that both localisation and urbanisation economies promote ODI. However, the former, within-industry effects, are more important. Overall, this study echoes Dunning’s call for more focus on the ‘L’ component of the OLI paradigm and particularly on the advantages that reside in clusters that make them not only attractive destinations for FDI but also fertile environments from which FDI can spring.