Academic Research Strengths and Multinational Firms' Foreign R&D Location Decisions: Evidence from R&D Investments 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 of multinational firms has received surprisingly little attention. In this paper we analyze the extent to which 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 2003–08. We construct precise measures of the academic research strengths of regions from annual publication data from Thomson Reuters Web of Science. University publications are counted at the level of regions and science fields, and measure academic research relevant for investing firms by linking science fields to the industries in which firms are active. We find that the probability of R&D projects being located 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 a major mechanism through which academic research attracts foreign R&D is the supply of PhD graduates.