Location of R&D activities by vertical multinationals over asymmetric countries

José Pontes and Carlos Eduardo Lobo e Silva

No 2017/12, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper deals with the location of R&D by vertical multinational firms. By taking the colocation of laboratories and productive plants as a benchmark, we can see that the spatial separation of both emerges under two conditions – high intensity of R&D spillovers and strong size asymmetry between countries. The latter condition is effective since it is related with a rising international inequality of wages. If the spatial separation of R&D and manufacturing takes place, headquarters services (namely R&D units) will be likely located in the smaller country. The converse pattern, where laboratories are place in the larger country, may arise if production is high-tech and the localized externalities of research activity are strong. Hence, this article confirms the main results of the literature on this topic but in the context of a different framework which allows us to tackle two usually disregarded topics: the transfer cost of technology; and the direct engagement of industrial workers in R&D spillovers. These aspects are dealt with by presupposing that, in addition to a “technological” externality among researchers, there is an “educational” externality exerted by researchers upon neighbouring industrial workers. When a country loses its laboratories, the inhabitants become intellectually “impoverished” and their labour starts to have a lesser efficiency.

Keywords: Location of R&D; Vertical Multinationals; Spillovers; Nash Equilibria in a Large Group of Agents. (search for similar items in EconPapers)
JEL-codes: F23 O32 R12 (search for similar items in EconPapers)
Date: 2017-11
New Economics Papers: this item is included in nep-cse, nep-geo, nep-ino, nep-int, nep-knm and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ise:remwps:wp0122017

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