Network Linkages and Location Choice in Foreign Direct Investment

Abstract

This paper shows that network linkage is an important determinant of location choice in foreign direct investment (FDI). Network linkages are divided into internal (intra-firm) and external (inter-firm) linkages. External linkages are further separated into strategic and relational linkages. We found that Taiwanese firms are keen on making external linkages, but are indifferent to, or incapable of, making internal linkages through FDI. Strategic linkages motivate Taiwanese FDI in the United States, while relational linkages facilitate Taiwanese FDI in Southeast Asia and China. Small firms are more sensitive to relational linkages than large firms in their choice of FDI location.