Title: Global cities and liability of foreignness

Authors: Kristian Mehlsen; Georg Wernicke

Addresses: Department of International Economics and Management, Copenhagen School of Business, Copenhagen, Denmark ' Department of International Economics and Management, Copenhagen School of Business, Copenhagen, Denmark

Abstract: In this paper, we combine the concepts of location, liability of foreignness (LoF), and their relation to factors that drive multinational enterprises (MNEs) towards, or away from, global cities. We argue that three interrelated characteristics of global cities - cosmopolitanism, availability of advanced producer services, and interconnectedness - help MNEs to overcome the liability of foreignness. We operationalise liability of foreignness as institutional distance and analyse its influence on the worldwide location of a large sample of subsidiaries of Nordic and Japanese MNEs. Our results indicate that MNEs have a stronger propensity to locate in global cities than in metropolitan or peripheral areas, and that these locational choices are affected by institutional distance and industrial characteristics. The results provide empirical support for our argument that locating in a global city can reduce the liability of foreignness suffered by MNEs, and that global cities play a central role in the process of globalisation.

Keywords: global cities; liability of foreignness; multinational enterprises; MNEs; institutional distance; location choices; cosmopolitanism; service availability; advanced producer services; interconnectedness; Nordic countries; Japan; industrial characteristics; globalisation.

DOI: 10.1504/EJIM.2016.073983

European Journal of International Management, 2016 Vol.10 No.1, pp.78 - 94

Published online: 17 Nov 2015 *

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