Do Technology Leaders Deter Inward R&D Investments? Evidence from Regional R&D Location Decisions in Europe

Abstract

Leading technology intensive firms have incentives to protect knowledge outflows to collocated firms in order to enhance the returns to R&D (Alcácer and Zhao, 2012). In this paper we argue that leading firms’ knowledge protection strategies are likely to discourage other firms from setting up new R&D establishments in their vicinity. Knowledge protection is facilitated by an R&D organization emphasizing internal knowledge flows drawing on complementary contributions by dispersed R&D units. We examine whether the presence and R&D organization of local technology leaders discourages inward R&D investments in an analysis of the (NUTS-1) regional location of 196 cross-border R&D investment projects in EU-15 countries during 2003-2008. While the strength of the local relevant technology clusters attracts inward R&D investments, investors are generally discouraged by the concentration of technology activities due to the presence of regional technology leaders in the industry. This discouraging effect occurs specifically in case the leaders exhibit an internally oriented R&D organization drawing on cross-border intra-firm knowledge flows in their technology development activities. Our study challenges the common notion in the literature on clusters and innovation that agglomeration is generally associated with greater knowledge spillovers.

Keywords: Multinational firms, R&D, location choice

JEL Classification: F230, O320, R39