Sample Essay

The existence of spillovers and their impact on location decisions MNCs was controversial topic that has received considerable attention of academic researchers. With spillovers almost impossible to measure, their very existence is controversial. Firms in the same sectors frequently, usually found in clusters. Some researchers take this empirical fact, as evidence of the existence of agglomeration economies. (Porter 1990 ) However, Head et al (1996) indicate that the clusters can exist for many reasons that have nothing to do with the overflow. Firms can collocate for economic reasons, such as local availability of factors of production or strategic reasons, such as the ability to better monitor competitors. Local governments wishing to attract quality jobs to offer subsidies to firms in specific industries. Thus, the fact that companies do a cluster is not in itself evidence of the consequences. (Porter 998)

                Another controversy in the literature on agglomeration economies is the question of what, if any, effect they have on the cost of production companies, and, consequently, the decision of firms in the collocate. If the extension exists, why leading firms risk placing a number of competitors, who may travel on their own investments in technology? Similarly, the clusters are often ultimately leads to overcrowding. After experiencing rapid growth, the area ofSilicon Valleyhas become such a high cost place to land and labor that many companies wishing to move there eventually were ousted from the market. (Oxley 1998) Ousting should eventually increase the production costs of all enterprises, including early admission to the cluster direct knowledge is less straightforward impact on the cost of the firm “in the sense that some firms may have, and others may lose. Focusing on the micro-mechanisms such as buyer-supplier relationships between firms, recent studies allow us to better understand what the company will benefit from the dissemination of knowledge. As firms tend to collocate, but with the patented technology is so important for companies, further research in this area will help us better understand the complex relationship between modulations costs of production and location decisions of FDI. (Oxford Review of Economic Policy Trade and Location 1998 )

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