We investigate the relationship between the location of private sector R&D labs and university research departments in Great Britain. We combine establishment-level data on R&D activity with information on levels and changes in research quality from the Research Assessment Exercise. The strongest evidence for co-location is for pharmaceuticals R&D, which is disproportionately located near to relevant university research, particularly 5 or 5* rated chemistry departments. This relationship is stronger for foreign-owned labs, consistent with multinationals sourcing technology internationally. We also find some evidence for co-location with lower rated research departments in industries such as machinery and communications equipment. Executive SummaryThis paper provides the first comprehensive evidence on the extent to which businesssector R&D activity is located in the vicinity of high quality university research departments in Great Britain. We exploit rich data on R&D activity in specific product groups at the establishment level, together with novel measures of the presence and quality of university research in relevant subject areas from the Research Assessment Exercise (RAE), at a fine level of geographic disaggregation. The findings shed new light on the links between public research and business R&D and the role of geographic proximity in public-private sector interactions, which are topical policy issues in the UK and elsewhere.The strongest evidence for co-location is for pharmaceuticals R&D, which is disproportionately located near to relevant university research, particularly high quality chemistry departments. This relationship is stronger for foreign-owned labs, consistent with multinationals sourcing technology internationally and confirming the importance of world-class centres of research for attracting increasingly footloose R&D investment. We also find some evidence for co-location with lower quality rated research departments in industries such as machinery and communications equipment, which raises the possibility that firms may benefit both from proximity to frontier basic university research and from more applied public sector research activity. The latter may be measured as low quality research for the purposes of the RAE and funding allocations, but our results suggest that it may play a role in some areas of technology transfer and even in attracting foreign-owned R&D investment. However, without further supporting evidence on the underlying economic mechanisms at work, it is difficult to make specific policy recommendations based on these results.

We investigate co-operative innovative activity in four major European countries, France, Germany, Spain and the UK, using internationally comparable firm-level data for manufacturing and service sectors. We examine the roles of knowledge flows, cost- and risk-sharing and public financial support in firms' decisions to collaborate. Our results suggest that firms which place greater value on external information flows are more likely to co-operate with the research base than with other firms and that firms facing appropriability problems are more likely to co-operate with the research base and with upstream and downstream firms than with direct competitors. We find evidence for Spain to suggest that firms collaborate to overcome risks and financial constraints. We also find that receipt of public support is positively related to undertaking collaborative innovation. In line with the focus of policy, this relationship is strongest for co-operation with the research base.co-operative innovation, spillovers, joint ventures,

This paper considers the impact that information and communication technology (ICT) has on firms' choices over organisational form. In particular, the decision over whether to produce in-house or outsource services, and the decision over the location of activity. ICT reduces the transaction and adjustment costs of moving activity outside the firm, and of carrying it out at greater geographic distance. We find that more ICT-intensive firms purchase a greater amount of services on the market and they are more likely to purchase offshore than less ICT-intensive firms. (JEL: D21, F23, L23)

We investigate evidence for spatially mediated knowledge transfer from university research. We examine whether firms locate their R&D labs in proximity to university research departments, and whether those that do are more likely to co-operate with, or source information from universities in the course of their innovative activities. We find evidence that pharmaceutical firms locate their R&D facilities near to frontier chemistry research departments, consistent with accessing localised knowledge spillovers, but also linked to the presence of science parks. In industries such as chemicals and vehicles there is less evidence of immediate co-location with universities, but those innovative firms that do locate near to relevant research departments are more likely to engage with universities.

This paper considers the impact that information and communication technology (ICT) has on firms' choices over organisational form. In particular, the decision over whether to produce in-house or outsource services, and the decision over the location of activity. ICT reduces the transaction and adjustment costs of moving activity outside the firm, and of carrying it out at greater geographic distance. We find that more ICT-intensive firms purchase a greater amount of services on the market and they are more likely to purchase offshore than less ICT-intensive firms. (JEL: D21, F23, L23)

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This paper looks at corporate income taxes in developing countries from both an empirical and a theoretical perspective. Many economic principles about corporate income taxes apply equally in advanced and developing economies, but some characteristics of developing economies lead to different trade-offs. These include fewer locational rents and generally lower administrative capacity. Empirically, corporate income tax developments broadly resemble those in advanced economies, but there are important differences too, such as a greater reliance on tax incentives, reflected in a gradual narrowing -rather than broadening -of tax bases in combination with tax cuts. Detailed analysis using effective tax rates reveals various distortions including a preference for certain assets, and strong tax advantages of debt finance over equity finance, particularly in high-inflation 560 Fiscal Studiesenvironments. An empirical analysis of correlations between countryspecific features and the likelihood of using tax incentives shows that countries offering low tax rates also tend to offer tax incentives, but that they cut their standard rates by substantially less than other countries between 1996 and 2007. Policy points• Developing countries have been cutting headline and effective corporate tax rates. • In contrast to advanced countries, they have made tax bases narrower and have tended to make substantial use of targeted tax incentives, possibly reflecting the aim of attracting mobile investment. • The use of tax incentives may in practice cause more harm than good because targeting mobile activities is difficult, administratively risky, and prone to rent-seeking and corruption, particularly for countries with weak administrative capacity. • Major improvements are possible within the current system in the areas of tax administration, regional cooperation and tax incentives.