CHALLENGING THE HOST COUNTRIES’ LOCATION ADVANTAGES: THE ROLE OF INDUSTRY 4.0 IN FOSTERING THE RESHORING OF EFFICIENCY-SEEKING FIRMS

The cross-border investments of efficiency-seeking firms are driven by the continuous search for better host-country location advantages in terms of either lower production costs or higher productivity. This is confirmed by recent evidence showing that these firms prefer to relocate to third countries when undertaking relocation of second degrees (RSDs), i.e. when modifying a prior location decision. We claim that Industry 4.0 factors, with their widely acknowledged potential for decreasing costs and increasing productivity, may indeed alter this localization pattern and favor the relocation of efficiency-seeking firms to their home country (RHC). Our results confirm that efficiency-seeking firms tend to implement a RHC when they have the opportunity to take advantage of Industry 4.0 factors. More specifically, our findings reveal a specular role of technology intensity and policies, with the former influencing the return decisions of cost-saving firms, and the latter being relevant on those of firms that seek productivity enhancements. These results not only shed fresh light on the relationship between Industry 4.0 factors and firms’ RSD decisions, but also raise a debate on how Industry 4.0 may alter the relevance of firm-level and country-level advantages for the location choice of efficiency-seeking firms.