Research versus development: global cities and the location of MNCs’ cross-border R&D investments

ABSTRACT

Large, internationally connected cities are important hubs of innovative activity, yet research on the attractiveness of such ‘global’ cities for research and development (R&D) activities by multinational corporations (MNCs) is scarce. We posit that factors determining cities’ potential to attract R&D investments by MNCs differ depending on the type of R&D investments: research or development. We investigate the heterogeneous determinants of location choices for 1537 cross-border R&D investments by 633 MNCs in 55 global cities during the period 2003–12. The findings suggest that cities’ technological and university strengths are stronger attracting factors for research activities, while global cities’ market potential and intellectual property rights protection attract investments in development activities. Implications are discussed.

KEYWORDS:

• foreign research and development
• global cities
• location choice
• research versus development

JEL:

• F21
• F23

ACKNOWLEDGEMENTS

The authors thank Editor Ben Derudder, Anthony Goerzen, Stijn Kelchtermans, Bart Leten, Arjen Slangen, Leo Sleuwaegen, the participants at the DRUID winter conference (2014) and the IAAM conference (2018), and two anonymous reviewers for comments on earlier drafts. This research partially draws on prior reporting by the authors to the OECD (Belderbos et al., 2016) and on the doctoral dissertations of Helen S. Du and Dieter Somers.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. An exception is the OECD report by Belderbos et al. (2016).

2. Research investments can also include a development component, which is perhaps to be expected given the ultimate commercialization goals of the firms.

3. One of the section criteria of MasterCard is knowledge creation, which to an extent may lead to the selection of the cities that are most attractive to R&D investments. If we omit the five top cities on the knowledge ranking (London, New York, Tokyo, Paris and Seoul) from the empirical model, we find similar results, though with a somewhat weaker significance of the top university variable. It is conceivable that taking out top cities, by reducing relevant variation in the sample, may introduce rather than mitigate selection bias.

4. We had to exclude 30 R&D investments by firms that we could not link to the ORBIS database (to identify prior affiliates of the firms in the global cities).

5. Tables on the distribution across industries and source countries can be obtained from the authors upon request.

6. Patents applied for by universities in the city are an alternative measure of university strength, but may not be unbiased if the propensity to patent may differ across universities due to legislation on publicly funded research, such as the Bayh Dole Act in the United States (e.g., Mowery & Ziedonis, 2002).

7. We thank Simon Bösenberg for provision of the B-index data. Other financial incentives that local (city) governments may provide, such as the provision of land and infrastructure, may also play a role, but that information on such incentives is not available.

 

Additional information

Funding

René Belderbos acknowledges financial support from Research Foundation Flanders (FWO) [grant number G073418N] and KU Leuven [grant number C14/17/012].