The Institutional Determinants Of Agglomeration: A Study In The Global Semiconductor Industry

We hypothesize that several characteristics of a country's institutional environment encourage firms to agglomerate. To test our hypotheses, we examine the collocation pattern of 931 plant investments made by 266 firms across 29 countries in the global semiconductor industry from 1975 to 2004. The results show that the decision to agglomerate is strongly dependent on a country's institutional context. Specifically, firms prefer to agglomerate when investing within countries with collectivist cultures, and those characterized by political and economic uncertainty. We assess the robustness of the results across multiple indicators of these institutional conditions.