Academic Research Strengths and Multinational Firms’ Foreign R&D Location Decisions: Evidence from Foreign R&D Projects in European Regions

Abstract

Although an expanding literature on university-industry linkages has suggested that proximity to academia can increase the innovative performance of firms, the role of academic research in the R&D location choices by multinational firms has received surprisingly little attention. In this paper we analyze to what extent academic research in host regions of EU-15 countries attracts R&D investments by multinational firms. We analyze the determinants of the location of 394 multinational R&D projects in NUTS-1 regions of EU-15 countries during the period 2003-2008. We construct precise measures of the academic research strengths of regions by using annual WoS publication data. We count university publications at the level of regions and science fields, and measure relevant publications for investing firms by linking science fields to the industry that firms are active in. We find that the probability to locate R&D projects in a host region is positively affected by the host region’s academic strength - after controlling for industry agglomeration, the technological strength of the region, R&D tax incentives, and other characteristics of host locations. Our results further suggest that in addition to providing knowledge spillovers, a major mechanism through which academic research attracts foreign R&D is the supply of graduates with a PhD.