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Location of R&D activities by vertical multinationals over asymmetric countries

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  • José Pedro Pontes
  • Carlos Eduardo Lobo e Silva

Abstract

This paper deals with the location of R&D by vertical multinational firms. By taking the colocation of laboratories and productive plants as a benchmark, we can see that the spatial separation of both emerges under two conditions – high intensity of R&D spillovers and strong size asymmetry between countries. The latter condition is effective since it is related with a rising international inequality of wages. If the spatial separation of R&D and manufacturing takes place, headquarters services (namely R&D units) will be likely located in the smaller country. The converse pattern, where laboratories are place in the larger country, may arise if production is high-tech and the localized externalities of research activity are strong. Hence, this article confirms the main results of the literature on this topic but in the context of a different framework which allows us to tackle two usually disregarded topics: the transfer cost of technology; and the direct engagement of industrial workers in R&D spillovers. These aspects are dealt with by presupposing that, in addition to a “technological” externality among researchers, there is an “educational” externality exerted by researchers upon neighbouring industrial workers. When a country loses its laboratories, the inhabitants become intellectually “impoverished” and their labour starts to have a lesser efficiency.

Suggested Citation

  • José Pedro Pontes & Carlos Eduardo Lobo e Silva, 2017. "Location of R&D activities by vertical multinationals over asymmetric countries," Working Papers REM 2017/12, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
  • Handle: RePEc:ise:remwps:wp0122017
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_012_2017.pdf
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    More about this item

    Keywords

    Location of R&D; Vertical Multinationals; Spillovers; Nash Equilibria in a Large Group of Agents.;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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