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Innovation catalysts: how multinationals reshape the global geography of innovation

Crescenzi, Riccardo, Dyevre, Arnaud and Neffke, Frank (2020) Innovation catalysts: how multinationals reshape the global geography of innovation. Geography and Environment Discussion Paper Series (7). Department of Geography and Environment, LSE, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.lse.ac.uk/geography-and-environment/res...
Additional Information: © 2020 The Author(s)
Divisions: Geography & Environment
Economics
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
JEL classification: O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R11 - Regional Economic Activity: Growth, Development, and Changes
R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Date Deposited: 15 Jul 2020 10:24
Last Modified: 21 Jan 2021 00:48
URI: http://eprints.lse.ac.uk/id/eprint/105684

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