When the rain comes, don’t stay at home! Regional innovation and trans-local investment in the aftermath of the Great Recession

Crescenzi, Riccardo ORCID: 0000-0003-0465-9796 and Ganau, Roberto (2022) When the rain comes, don’t stay at home! Regional innovation and trans-local investment in the aftermath of the Great Recession. Economic Geography and Spatial Economics Series (36). Department of Geography and Environment, London School of Economics and Political Science, London, UK.

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Abstract

Global connectivity and knowledge circulation are necessary for innovation to thrive. However, in response to external shocks, economies tend to reduce their external exposure in order to minimize risk and focus their resources on internal markets. Uncoordinated and often competitive responses to economic shocks are in sharp contrast with the need for innovative solutions for recovery. This paper explores this paradox by looking at regional innovation in the USA in the aftermath of the Great Recession. The paper compares Foreign Direct Investment (FDI) with similar domestic, inter-state investment in order to assess whether a ‘local innovation premium’ is associated with global connectivity vis-à-vis purely domestic linkages. The results show that what matters for post-crisis innovation is active internationalization in the form of outward FDI. Truly global outward connectivity matters the most: investing abroad offers the highest short-term returns vis-à-vis domestic inter-regional investments. FDI connectivity with highly innovative frontier systems offers the highest returns when innovation is needed to respond to the crisis. However, low-innovation regions can still profit (in the short-run) from connectivity with other relatively less technologically advanced regions, benefitting from stronger congruence in terms of technological capabilities. These results send a warning message on the potentially adverse consequences of current policies in most advanced economies that seek to manage foreign activities of domestic companies in attempts to foster domestic security and recovery.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.lse.ac.uk/geography-and-environment/re...
Additional Information:	© 2022 The Authors
Divisions:	Geography & Environment
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
JEL classification:	F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O19 - International Linkages to Development; Role of International Organizations O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O30 - General O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O51 - U.S.; Canada R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade
Date Deposited:	03 Oct 2022 12:09
Last Modified:	17 Oct 2023 07:34
URI:	http://eprints.lse.ac.uk/id/eprint/116878

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