The productivity impact of R&D and FDI spillovers: characterising regional path development

R&D activities by indigenous firms create new knowledge and technology in a region, while foreign-owned firms bring advanced knowledge and technologies from their home countries. This paper analyses the spillover effects of R&D-active or foreign-owned firms on total factor productivity of domestic non-R&D active firms. It combines two sets of literature: the one on spillover effects of intra-industry and inter-industry linkages and the other on the regional context in which these linkages occur. As measured through input-output tables, industry linkages reveal that R&D or FDI spillovers take on diverse roles in regions. Focusing on productivity spillover effects on domestic non-R&D active firms in three regions in Belgium between 2000 and 2017, we conclude that R&D spillovers generally occur more frequently than FDI spillovers. By focussing on two sources of spillovers, the paper offers a more nuanced picture of industrial transformation and regional path development. Region-specific analyses show that the effects on the productivity of domestic non-R&D active firms originate from different spillover sources. The impact of spillovers and their contribution to industrial transformation differs according to the regional development path characterised by the varying degrees of organisational thickness and specialisation of the regional innovation system. Linkages of R&D active or foreign-owned firms with domestic non-R&D active firms exert a heterogeneous impact on their productivity. Therefore, an adapted regional innovation policy, such as smart specialisation, should consider these region-specific spillover effects on productivity when establishing future regional development paths.