New Methods for Ex Post Evaluation of Regional Grouping Schemes in International Business Research: A Simulated Annealing Approach

Abstract

International business research has long acknowledged the importance of regional factors for foreign direct investment ("FDI") by multinational corporations ("MNCs"). However, significant differences when defining these regions obscure the analysis about how and why regions matter. In response, we develop and empirically document support for a framework to evaluate alternative regional grouping schemes. We demonstrate application of this evaluative framework using data on the global location decisions by US-based MNCs from 1980-2000 and two alternative regional grouping schemes. We conclude with discussion of implications for future academic research related to understanding the impact of country groupings on MNC FDI decisions.

Keywords: Simulated Annealing, Regional Groups, Foreign Direct Investment, Multinationals