New insights on the role of location advantages in international innovation
AbstractThis paper takes a closer look at the role of location advantages in the spatial distribution of MNE R&D activity. In doing so, we have returned to first principles by revisiting our understanding of L and O advantages and their interaction. We revisit the meaning of L advantages, and offer a succinct differentiation of L advantages. We emphasise the importance of institutions, and flesh out the concept of collocation L advantages, which play an important role at the industry and firm levels of analysis. Just because a country possesses certain L advantages when viewed at a macro-level, does not imply that these are available to all industries or all firms in that location without differential cost. When these are linked to the distinction between location-bound and non location-bound O advantages, and we distinguish between MNEs and subsidiaries it allows for a clearer understanding of the MNE's spatially distributed activities. These are discussed here in the context of R&D, which - in addition to the usual uncertainties faced by firms - must deal with the uncertainties associated with innovation. Although prior literature has sometimes framed the centralisation/decentralisation, spatial separation/collocation debates as a paradox facing firms, when viewed within the context of the cognitive limits to resources, the complexities of institutions, and the slow pace of the evolving specialisation of locations, these are in actuality trade-offs firms must make.
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Bibliographic InfoPaper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 045.
Date of creation: 2011
Date of revision:
FDI; foreign investment; direct investment; multinationals; transnational corporations; MNEs; eclectic paradigm; collocation; locational advantage; country specific advantages;
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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