Location factors of international R&D activities: an econometric approach

Abstract

Research and development (R&D) is important for economic growth. Many countries therefore attempt to raise the investments in R&D. Increasingly important in this context are foreign direct investments in R&D, which on average constitute 24% of total business R&D investments in the EU15 (between 1995 and 2004). This paper focuses on the question: 'Which location factors are decisive for the attractiveness of foreign R&D investments?' The answer to this question is crucial in order to attract new foreign investments in R&D and to keep home-base R&D activities in a country or to expand them. Based on econometric analysis, we show in this paper that, besides the impact of human capital and value added of foreign affiliates, a country's stock of private R&D capital is an important location factor for international R&D activities. The interpretation of this result is twofold. First of all, it indicates that firms locate their R&D abroad to reap the benefits of knowledge-spillover effects. Secondly, we argue that the stock of private R&D capital embodies a so-called 'place-to-be effect'. This effect can be regarded as a signalling effect to firms: if the private R&D capital stock in a country is relatively large, framework conditions for research are in place and the innovative climate is likely to be excellent.internationalization of R&D, R&D location factors, R&D investment climate, foreign direct investment,

The influence of clustering on MNE location and innovation in Great Britain

“…Size and age were also found to be positively related to FDI, as would be expected. The general importance of the scale of own industry employment and human capital accords with the literature (Autant-Bernard, 2001;Erken and Kleijn, 2010). The importance of the sectoral composition of a region in mediating regional innovation performance gibes with a similar finding using the Community Innovation Survey by Evangelista et al (2001).…”

“…Overseas investment by MNEs related to R&D has risen sharply in the last two decades (Belderbos et al, 2009) and overseas multinationals have come to account for a significant share of innovation expenditure, particularly in advanced industrialised countries, contributing both directly and indirectly, via localised spillovers, to domestic innovation in host economies (Erken and Kleijn, 2010). MNEs dominate private spending on R&D (Ambos, 2005), therefore the question of what attracts MNEs to particular locations is highly important in the context of regional development.…”

The Internationalization of R&D

“…The second main source of variation is that some studies focus on the choice of host country given a foreign location for R&D (Kumar 1996(Kumar , 2001Cantwell and Piscitello, 2002;Belderbos et al, 2008: Hegde andHicks, 2008;Shimizutani and Todo, 2008;Schmiele 2009;Dachs and Pyka, 2010;Erken and Kleijn, 2010) whereas others look only at the decision to perform R&D outside the home country (Edler et al, 2002;von Zedtwitz and Gassmann, 2002;Belderbos et al, 2009). The home countries considered range from individual (US, Japan, Sweden) to the Triad, the OECD, or more.…”

“…In some cases the authors have access to firm-level data, whereas in other they rely on industry or country level data (Kumar, 1996(Kumar, , 2001Jones and Teegen, 2003;Hegde and Hicks, 2008;Erken and Kleijn, 2010). Because patent data are publicly available at the firm and location level (unlike R&D), a number of studies make use of these data to analyze the location decision for innovative activity (Patel and Vega, 1999;Guellec and van Pottelsberghe, 2001; Le Bas and Sierra, 2002;Cantwell and Piscitello, 2002;Criscuolo et al, 2005).…”

Effects of foreign acquisitions on R&D and high-skill activities

“…Homebase exploiting is in the latter termed asset-exploiting, and home-base augmenting is termed asset-seeking. Erken and Kleijn (2010) includes a literature review on empirical studies of the location factors of R&D. 14 Andersson and Xiao (2016) find that firms with strong technological competence and weak financial resources operating in high-tech sectors, where the costs of entering international markets are large, are commonly acquisition targets for MNEs, domestic as well as foreign. 15 Firm-specific advantages create ownership (O) advantages, which together with locational (L) and internalisation (I) advantages in the OLI framework, explain the emergence of MNEs (Dunning 1977).…”