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The Influence of Clustering on MNE Location and Innovation in Great Britain

  • Gary Cook


  • Naresh Pandit
  • Hans Loof


  • Bˆrje Johansson

This paper addresses two questions: what, if anything, is the influence of geographic concentration of economic activity on patterns of foreign direct investment; what is the relationship, if any, between geographic concentration of economic activity, multinationality and innovation. The paper identifies the consensus view which is emerging in the literature, based on both theory and evidence, that strong clusters are likely to be attractive for inward direct investment and that they promote innovation. The paper tests whether this relationship is evident in Great Britain using data derived from the UKís Annual Foreign Direct Investment survey and the UKís Community Innovation Survey 2007. It addresses a surprising gap in the emerging literature by also examining the relationship between cluster strength and outward direct investment, thereby testing Porterís (1990) claim in The Competitive Advantage of Nations, that advantages gained in strong clusters would be the foundations of international competitiveness. The paper also distinguishes between two different types of agglomeration economy, localisation economies based on collocation of firms in related lines of activity, and urbanisation economies based on the overall concentration of economic activity in a particular region, a distinction most of the emerging literature in International Business has not made clear. The first set of models examine the propensity to engage in outward direct investment and the geographic pattern of foreign ownership of firms active in Great Britain and find that both are positively related to cluster strength, with localisation economies being more important than urbanisation economies. T wo models of innovation are estimated, the first examines what factors influence firms to be innovative and the second what influences innovation effort as measured by R&D intensity. In both cases there is evidence that regional agglomeration promotes innovation and that there are stronger effects flowing from own industry agglomeration than from broader regional scale.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa10p1489.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa10p1489
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  9. Alan M Rugman & Alain Verbeke, 2007. "Liabilities of regional foreignness and the use of firm-level versus country-level data: a response to Dunning et al. (2007)," Journal of International Business Studies, Palgrave Macmillan, vol. 38(1), pages 200-205, January.
  10. Borje Johansson & Hans Loof, 2008. "Innovation Activities Explained By Firm Attributes And Location," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 17(6), pages 533-552.
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  12. Catherine Beaudry & Stefano Breschi, 2003. "Are firms in clusters really more innovative?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(4), pages 325-342.
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  17. Pfaffermayr, Michael & Bellak, Christian, 2000. "Why foreign-owned firms are different : a conceptual framework and empirical evidence for Austria," HWWA Discussion Papers 115, Hamburg Institute of International Economics (HWWA).
  18. Homin Chen & Tain-Jy Chen, 1998. "Network Linkages and Location Choice in Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan, vol. 29(3), pages 445-467, September.
  19. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
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  22. Julian Birkinshaw & Neil Hood, 2000. "Characteristics of Foreign Subsidiaries in Industry Clusters," Journal of International Business Studies, Palgrave Macmillan, vol. 31(1), pages 141-154, March.
  23. Beaudry, Catherine & Schiffauerova, Andrea, 2009. "Who's right, Marshall or Jacobs? The localization versus urbanization debate," Research Policy, Elsevier, vol. 38(2), pages 318-337, March.
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  25. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
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