Geographic clustering and outward foreign direct investment § Gary A.S. Cook a , Naresh R. Pandit b, *, Hans Lo ¨o ¨f c , Bo ¨ rje Johansson d a University of Liverpool Management School, Chatham Street, Liverpool L69 7ZH, United Kingdom b Norwich Business School, University of East Anglia, Norwich, NR4 7TJ, United Kingdom c The Royal Institute of Technology, Division of Economics, Drottning Kristinasv 30, SE-100 44 Stockholm, Sweden d Jonkoping International Business School, Jonkoping University, Gjuterigatan 5, SE-551 11 Jonkoping, Sweden 1. Introduction Research on both the foreign direct investment (FDI) activities of multinational enterprises (MNEs) and the advantages, disadvantages and processes that arise in geographical clusters have long and rich traditions (Buckley, 2009; Dunning, 2000; Karlsson, 2008; Marshall, 1890). A growing body of research on the interface of these two topics suggests a link between highly productive clusters and FDI (Majocchi & Presutti, 2009). For example, Kozul-Wright and Rowthorn (1998) find that highly productive clusters contain a larger than expected quantity of FDI and Nachum (2003) reports that this imbalance is increasing. Accordingly, highly productive clusters may attract FDI, and FDI may promote cluster productivity, and we know from the work of Blomstrom and Kokko (1998, 2003) that both effects will vary by location and industry. Findings like these have prompted a re-evaluation of the spatial organisation of FDI. Within the International Business (IB) literature, the seminal call for more research on location, and in particular, location in clusters, as a determinant of FDI came from Dunning (1998). He concluded: ‘‘The extent to which MNEs promote, or gravitate to, spatial clusters within a country or region is an under-researched area’’ (1998, p. 58). International Business Review 21 (2012) 1112–1121 A R T I C L E I N F O Article history: Received 29 September 2010 Received in revised form 2 December 2011 Accepted 12 December 2011 Keywords: Clusters FDI MNEs ODI OLI paradigm A B S T R A C T This study addresses an important neglected question: To what extent do geographic clusters promote outward foreign direct investment (ODI)? We find evidence that clusters do promote ODI and so support Porter’s argument that advantages gained in clusters can be the foundations of successful internationalisation. Digging deeper, we find that certain cluster incumbents promote more ODI than others, with more experienced firms and firms with stronger resource bases accounting for more ODI. We also find that firms located in clusters within major global nodes/cities engage in more ODI. Finally, we find that both localisation and urbanisation economies promote ODI. However, the former, within- industry effects, are more important. Overall, this study echoes Dunning’s call for more focus on the ‘L’ component of the ownership, location, internalisation (OLI) paradigm and particularly on the advantages that reside in clusters that make them not only attractive destinations for foreign direct investment (FDI) but also fertile environments from which FDI can spring. ß 2011 Elsevier Ltd. All rights reserved. § Disclaimer: This work contains statistical data from ONS which is Crown copyright and reproduced with the permission of the controller of HMSO and Queen’s Printer for Scotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. * Corresponding author. Tel.: +44 0 1603 592886. E-mail addresses: g.cook@liv.ac.uk (Gary A.S. Cook), n.pandit@uea.ac.uk (N.R. Pandit), hans.loof@abe.kth.se (H. Lo ¨o ¨ f), borje.johansson@ihh.hj.se (B. Johansson). Contents lists available at SciVerse ScienceDirect International Business Review jo u r nal h o mep age: w ww.els evier.c o m/lo c ate/ib us r ev 0969-5931/$ – see front matter ß 2011 Elsevier Ltd. All rights reserved. doi:10.1016/j.ibusrev.2011.12.004