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Publié le
Mardi 20 Avril 2021
Globalization has greatly increased possibilities of serving a national market from foreign locations and thus, to optimize individual components' production costs, which has contributed to value chains fragmentation over the past decades. Competition has developed, including between European countries, in attracting foreign direct investment on their territory.
Les facteurs de localisation des investissements directs étrangers en Europe

Many surveys conducted with company managers exist, identifying key factors in company location choices, but the empirical literature remains inconclusive. The presently summarised study by France Stratégie1 uses foreign direct investment data compiled by Business France in 27 European countries to conduct an econometric analysis to identify factors determining multinational companies' location choices.

This work focuses on the most mobile functions and, therefore, most influenced by production costs, the general business environment, and public policies: production units, innovation centres, and head
offices. Although multinational companies place production costs reduction at the centre of their location choices, this dimension coexists with other considerations. In terms of attractiveness, the analysis confirms, for example, that production sites are more sensitive to labour costs than innovation centres and head oces. A 10% decrease in France's labour costs would thus lead to a 10% increase in the share of production investments received by France. However, this empirical work confirms the importance of two other factors in location choices:

  • Given the resulting synergies, companies tend to co-locate their production units and innovation centres within the same territory. Indeed, for a company, the presence of a production centre in France increases the probability of setting up an innovation centre by approximately 74%. In return, the presence of an innovation centre in France increases the likelihood of setting up a production centre by about 62%.
  • Another determining factor in the choice of location is the tax environment. France has a high corporate income tax and production tax rates. In return, it oers significant tax incentives for R&D through a generous research tax credit system. If France had the same production tax level as its partners, its share in the total number of production site creations by non-European multinationals in Europe would increase by 18%. If corporate tax rates were harmonized in Europe, France's share of company head oces would increase by 70% to achieve 13% of the total. If this were completed with the harmonization of production taxes, head oces' increase would be over 130%, reaching 17% of the total number. Conversely, its share in innovation centres set up by foreign multinationals could decrease by 30% if all European countries adopted the same level of R&D tax aid.

These results need to be confirmed and clarified by other studies, particularly in the aim to overcome two of the analysis limitations: on the one hand, the econometric study focuses solely on investments in Europe by non-European companies; on the other hand, the analysis takes into account each location decision in the same way, regardless of the amount of investment, since the latter is only provided in a limited number of cases.

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Rémi Lallement
Aymeric Lachaux
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