Agglomeration and imitative behaviour : a study on divestments of Italian manufacturing companies in China and Hong Kong

The work aims at clarifying the complex role of host country foreign investor agglomeration and imitation in the divestment of manufacturing affiliates. We test our hypotheses analysing divestment decisions in a comprehensive sample of 596 Italian manufacturing affiliates established in the 31 Chinese provinces and Hong Kong in the period ranging from 2000 to 2014. We use a two-step methodology calculating a measure of responsiveness of foreign affiliates to agglomeration and imitation derived from a first-step location decision model (conditional logistic). Therefore from this model we derive the elasticity of the location choice probability with respect to agglomeration and imitation at entry measures and assess the effects of those behaviours on the likelihood of divestment of foreign affiliates. We find evidence that location choices are positively influenced by the presence of Italian investors agglomerations, both in the broad manufacturing industry and in the specific manufacturing sectors, that act as attractive forces to the advantage of the territorial area characterized by those agglomerations. Moreover, affiliates of which the location choice at entry was dominated by the imitation of investment decisions of other Italian manufacturing companies and by the local presence (in the Chinese province) of Italian investor agglomeration have lower divestment rates, suggesting that the positive externalities existing in agglomerated areas and the possibility to learn from past actions of other Italian companies have a fundamental role in guaranteeing the survival of the foreign affiliates over time.