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Innovation catalysts: how multinationals reshape the global geography of innovation

Riccardo Crescenzi, Arnaud Dyevre and Frank Neffke

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study whether and when Research and Development (R&D) activities by foreign multinationals help in the formation and development of new innovation clusters. Combining information on nearly four decades worth of patents with socio-economic data for regions that cover virtually the entire globe, we use matched difference-in-differences estimation to show that R&D activities by foreign multinationals have a positive causal effect on local innovation rates. This effect is sizeable: foreign research activities help a region climb 14 percentiles in the global innovation ranks within five years. This effect materializes through a combination of knowledge spillovers to domestic firms and the attraction of new foreign firms to the region. However, not all multinationals generate equal benefits. In spite of their advanced technological capabilities, technology leaders generate fewer spillovers than technologically less advanced multinationals. A closer inspection reveals that technology leaders also engage in fewer technological alliances and exchange fewer workers in local labor markets abroad than less advanced firms. Moreover, technology leaders tend to set up their foreign R&D activities in regions with relatively low absorptive capacity. We attribute these differences to that fact that the trade-off between costs and benefits of local spillovers a multinational faces depends on the multinational’s technological sophistication. This illustrates the importance of understanding corporate strategy when analyzing innovation clusters.

Keywords: innovation; regions; Foreign Direct Investment; patenting; cluster emergence (search for similar items in EconPapers)
JEL-codes: O32 O33 R11 R12 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2020-07
New Economics Papers: this item is included in nep-cse, nep-geo, nep-ino, nep-int, nep-sbm, nep-tid and nep-ure
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