Are Firms in Developing Countries in Spider Webs or Iron Cages? Geographic Traps and Firm Performance

Abstract

We explore the question of whether a geographic context represents opportunity or threat using two competing theories - geography of opportunity and curse of geography - and multilevel techniques to analyze data from 366 firms in six African countries (and validated with 128 firms from 24 countries). We find that location (landlockedness and bad neighbors) relate negatively to both sales and net profit. Infrastructure, however, does not relate directly to firm performance at a significant level but interacts with one firm characteristic - multinationality - in relating to sales and net profit. Locational traps - landlockedness and bad neighbors - also interact with multinationality and CEO origin in relating to sales and net profit. We discuss the implications of these findings for research and practice.