Abstract
The proliferation of foreign direct investment, continuing urbanisation and the emergence of industrial clusters are some of the manifest features of economic development in recent decades. These issues have been the target of research in various disciplines, but the spatial nature of these processes has rarely been emphasised. To address this shortcoming, we use a very detailed plant-level dataset with buildingaccurate geographical locations to analyse the subnational patterns of foreign-owned firm location. The key question of the study is whether the locations of foreign-owned firms are more influenced by agglomeration externalities than are domestic companies. The main finding is that foreign firms are consistently located in areas with higher potential agglomeration externalities. In addition, foreign-owned firms tend to avoid denser areas when these locations do not provide more concrete economic benefits, suggesting that foreign-owned firms are better at judging the negative side of agglomeration as well.