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Regulation, red tape and location choices of top R&D investors

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Abstract

This paper investigates how product and labour market regulations and red tape affect the way in which top corporate research and development (R&D) investors worldwide organise their cross-border operations. The decision about where a company locates its international subsidiaries is modelled using location-specific framework conditions, socio-economic factors and other controls commonly used in the economic geography literature. The location decision drivers are estimated using a multilevel mixed-effects logistic regression, controlling for both fixed and random effects. Our results confirm that both product market regulation (PMR) and employment protection legislation (EPL) significantly affect the location decisions of top R&D investors, as well as red tape and profit tax. The marginal effect of PMR is by far the largest, followed by EPL; the cost of starting a business and profit tax show lower marginal effects. Moreover, we found that (i) PMR and EPL are complementary (i.e. reducing one would also reduce the negative impact of the other) and (ii) of the three components of the PMR indicator barriers to trade and investment, state control and barriers to entrepreneurshipthe latter is the one with the lowest marginal effect. Policy implications are drawn accordingly.

Suggested Citation

  • Daria Ciriaci & Nicola Grassano & Antonio Vezzani, 2016. "Regulation, red tape and location choices of top R&D investors," JRC Working Papers on Corporate R&D and Innovation 2016-01, Joint Research Centre.
  • Handle: RePEc:ipt:wpaper:201601
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    File URL: https://publications.jrc.ec.europa.eu/repository/handle/JRC100807
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    Cited by:

    1. Aurelien Quignon, 2022. "Market Regulation and Innovation: Direct and Indirect Effects," Journal of Industry, Competition and Trade, Springer, vol. 22(3), pages 429-456, December.
    2. Mirko Abbritti & Mr. Sebastian Weber, 2019. "Market Regulation, Cycles and Growth in a Monetary Union," IMF Working Papers 2019/123, International Monetary Fund.
    3. Konstantinos Dellis, 2018. "Financial development and FDI flows: evidence from advanced economies," Working Papers 254, Bank of Greece.
    4. Emanuele Brancati & Raffaele Brancati & Dario Guarascio & Andrea Maresca & Manuel Romagnoli & Antonello Zanfei, 2018. "Firm-level Drivers of Export Performance and External Competitiveness in Italy," European Economy - Discussion Papers 087, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Alexander Coad & Nicola Grassano, 2016. "Disentangling the processes of firm growth and R&D investment," JRC Research Reports JRC103175, Joint Research Centre.

    More about this item

    Keywords

    Multinational Corporations (MNCs); Internationalization; Product market regulation; Employment protection.;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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