Paper Critique: Economic Geography and the Location of TNCs

Nachum, L. (2000). Economic Geography and the Location of TNCs: Financial and Professional Service FDI to the USA. Journal of International Business Studies, 31(3), 367–385.  

Nachum (2000) is a professor of International Business at City University New York. The author has over 1800 citations in over forty papers written between 1994 and today. The research in the publications concerns multinational companies, globalization, international strategy, and topics around emerging markets. In addition, the author has recently published several works concerning business in Africa (Nachum et al., 2022; Nachum & Ogbechie, 2023). The works cover an analysis of Nigeria’s environmental resources and how these are being represented by local banks and the global overlooking of the complex but booming business environment on the African continent.

In referencing the economic geography as it is associated with transnational corporations (TNCs), Nachum (2000, p. 367) explored “the characteristics affecting the location choices of TNCs [which] have traditionally been dominated by reference to the relative abundance of certain immobile assets in particular locations.” This research aims to explain the choice of location by TNCs. The factors of production that are involved with locating a TNC “include intangible assets such as culture, human capital and institutional frameworks” (Nachum, 2000, p. 367). Yet, many such asset classes exist in multiple countries and regions. Consequently, research on economic geography provides alternative methods that may be used in organizing and reporting on economic activity.

The paper emphasizes some advantages that local firms can accrue through decisions based on economic geography. The explanatory power of financial choices may be improved through models of international business that integrate teaching decisions concerning the choice of geography when setting up both head offices and subsidiaries. In answering some of these questions, the author structures the paper to evaluate the theoretical considerations behind why firms choose to locate TNCs. Moreover, it is noted that TNCs “operate in two or more countries, have the potential of being simultaneously embedded in two or more localities” (Nachum, 2000, p. 369).

The global web-like structure of TNCs further extends to the creation of external ties, supplemented by internal connectivity that links affiliates, which may also be spread across the globe. The paper provides an analysis of multiple forms of financial decision-making, but does not note taxation. This omission could lie in the choice of financial and professional services, which would link TNCs to decisions concerning a combination of legal and accounting professionals and the ability of global firms to access necessary services and support personnel. By structuring the head office well, TNCs are noted to have in-house operations and their core competencies focused so other work can be outsourced to external specialist suppliers.

The statistical model provided by the author provides a thorough analysis of many United States-based businesses. Yet, with TNCs located in many countries and not just the US, comparing choices made by firms in other locations, such as the United Kingdom and Europe, or alternatively, Asian locations, such as Japan or South Korea, would add value to the work. Additionally, two other aspects of the paper could be enhanced. First, by investigating and evaluating tax differences between the various international jurisdictions, it may be possible to analyze whether TNCs choose a location based on the amount of money paid in tax or distributed to governments.

Equally, it may be at least partially likely that firms select a location based on personal and sentimental reasons. For example, executives and the firm may have children associated with schools. While such reasoning may not seem purely logical, the actions of CEOs can be linked to decision-making processes that are purely a factor of personal concerns. This form of choice may be considered an agency problem (Cecot & Hahn, 2020), yet as Aharoni et al. (2011, p. 136) contend, “[a]ccording to prospect theorists, the framing of an outcome or a decision by economic agents affects the utility that these agents expect,” leading to a scenario where even multinational firms make decisions based on social constraints of executives.

Moreover, the social system where decisions are made will change the propensity of decision-makers and executives to choose a location. Next, aspects of behavioural theory could be integrated with this work to round out the analysis of economic decision-making with a combination of psychological or behavioral choices integrated with linked decisions associated with geography. While the overall analysis of US-based TNCs is robust, extending the questions into such alternative areas of economic research and looking beyond the United States would increase the value of the work.

Later authors (Beugelsdijk et al., 2018) have extended the work of Nachum (2000), arguing that international management is founded on the process of managing distance. Additionally, follow-up research to Nachum (2000) has examined the reshoring of firms and the choices to change location (Rasel et al., 2020), demonstrating that the combination of innovation intensity and regulatory incentives may influence choice more than technological capability in a location. While such research extends the original work, investigating alternative choices as to why a firm moves or chooses a location would be stronger if regulatory incentives and taxation were also incorporated. Overall, Nachum (2000) captures many valid reasons for the choice of location by TNCs, setting a foundation that other, later scholars have taken up.


Aharoni, Y., Tihanyi, L., & Connelly, B. L. (2011). Managerial decision-making in international business: A forty-five-year retrospective. Journal of World Business, 46(2), 135–142.

Beugelsdijk, S., Kostova, T., Kunst, V. E., Spadafora, E., & van Essen, M. (2018). Cultural Distance and Firm Internationalization: A Meta-Analytical Review and Theoretical Implications. Journal of Management, 44(1), 89–130.

Cecot, C., & Hahn, R. W. (2020). Transparency in agency cost-benefit analysis. ADMIN. L. REV., 72, 157, 158.

Nachum, L. (2000). Economic Geography and the Location of TNCs: Financial and Professional Service FDI to the USA. Journal of International Business Studies, 31(3), 367–385.

Nachum, L., & Ogbechie, C. (2023). Are environmental conditions in the eyes of the beholder? Foreign and local firms in Africa. Africa Journal of Management, 9(1), 20–45.

Nachum, L., Stevens, C. E., Newenham-Kahindi, A., Lundan, S., Rose, E. L., & Wantchekon, L. (2022). Africa rising: Opportunities for advancing theory on people, institutions, and the nation state in international business. Journal of International Business Studies.

Rasel, S., Abdulhak, I., Kalfadellis, P., & Heyden, M. L. M. (2020). Coming home and (not) moving in? Examining reshoring firms’ subnational location choices in the United States. Regional Studies, 54(5), 704–718.

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