The Geography of Foreign R&D Within a Host Country

Recent research on multinational firms emphasizes the learning and knowledge-creating aspects of foreign direct investment. According to this view, multinationals may be pulled abroad in order to “harness the new sources of knowledge and ideas embedded in regionally based centers of innovation” (Florida and Kenney 1994). This paper develops and tests a set of hypotheses linking the technological characteristics of regions within a host country to levels of R&D investment in those regions by foreign multinationals. We argue that the economic geography offoreign R&D investment can be understood through an evolutionary lens in which the tacit and embodied characteristics of knowledge give rise to its locational boundedness—and hence an incentivefor firms to be proximate to these resources. We further argue that the existing “site-selection” literature is misplaced in focusing solely on the geography of new facilities and investments by multinational firms. When viewed through an evolutionary lens, the economic geography of foreign R&D can be understood as a cumulative process of expansion, contraction, and adaptation by firms of existingfacilities in host-country locations. Firms, in essence, make an ongoing series of joint location-technology choices that largely determine the observable pattern of FDI in R&D. To test our hypotheses, we utilize a comprehensive database of patenting activity by US.-based subsidiaries between 1977 and 1990. Results show broad-level support for our claims.