- Published: May 2009
- Region: China
Attractiveness for Innovation: Location Factors for International Investment
- Published: April 2011
- Region: Global
- 100 Pages
- OECD Publishing
Virtually all governments are keen to attract international investments by multinational enterprises (MNEs) as these promote growth and employment by creating new jobs, realising new investments and bringing in new technologies. Policy makers are interested in the direct and indirect value that new investments by MNEs can bring to their country. By encouraging multinationals to establish local affiliates, host countries hope to generate technology transfer to local firms since foreign direct investment (FDI) is one of the most important channels through which technology is transferred across countries.
Attractiveness for investment in innovation is high on the policy agenda in many countries as innovation has become a key factor of growth and competitiveness in OECD countries. Further on, MNEs are central actors in the global innovation process and consequently, ‘national’ innovation activities in host countries are to a large extent affected by international location decisions taken by MNEs. Consequently, there is a growing interest among OECD member countries to formulate policies aimed at fostering territorial attractiveness for particularly high-tech, R&D and innovation activities.
While all countries and regions have some policy measures in place aimed at increasing attractiveness for investment in innovation, it is not clear if such policies are effective. Evidence from some countries suggests that a coherent and structured strategy to attract investment is not always in place and negotiations with international investors are often tackled on an ad hoc basis. At the same time, a growing policy competition between countries is gaining momentum in attracting international investment.
OECD countries are confronted with increasing competition from emerging economies for international investments not only in more labour-intensive activities but also in innovative activities. This has raised concerns in some developed countries about their long-term economic future: after the relocation of major production and distribution investments by MNEs (including their own indigenous MNEs), do they now also risk losing higher value-added activities like research and development (R&D) and innovation-related activities to emerging economies?
Attractiveness for investment in innovation is high on the policy agenda in many countries as innovation is a key factor of growth and competitiveness in OECD countries. Virtually all governments are keen to attract international investment by multinational enterprises (MNEs) as a means to promote growth and employment, create new jobs and bring in new technologies.
This book analyses the current trends in international investments in innovation (Chapter 1) and discusses countries’ attractiveness for international investments in innovation (Chapter 2). Because innovation is a broad and complex concept encompassing a range of inputs and outputs within and across firms’ activities, location factors are discussed based on both an industry and a business function approach. The industry approach focuses on high-technology industries, defined by the OECD as those where the R&D effort is the highest. The business function approach focuses on the most innovative activities in companies’ global value chains: corporate R&D functions and headquarters which are both supposed to play a determining role in the innovation strategy of multinational enterprises.
The book also discusses attractiveness policies for innovation that countries have implemented (Chapter 3) which are often based on the more traditional instruments for attracting international investments in general. The evidence presented raises some policy issues and questions about existing policies for attracting international investment particularly in innovation: the need for a broad policy approach as opposed to a targeted one, links with other (innovation) policies, etc. Based on this discussion, a number of policy principles are formulated to guide policy makers in formulating more effective policies to attract innovation. In addition, this report notes the negative effects of the increasing policy competition between countries in attracting international investments, including bidding wars between countries to attract individual investors through direct financial and fiscal incentives.
This report is based on work undertaken by the OECD Working Party on Globalisation of Industry (WPGI) in 2008 and 2009, including a literature review and desk research, statistical and econometric analyses, policy surveys and questionnaires. These have directly contributed to the OECD Innovation Strategy and the results are presented in this thematic report. It was prepared by Koen De Backer of the OECD Secretariat and Fabrice Hatem, who acted as consultant.
This report analyses the current trends in international investment in innovation and the attractiveness policies already implemented. These are often based on the more traditional instruments for attracting international investment. The book also explores in more detail the role of investment incentives that governments tend to give to international investors: their rationale, their impact and their usefulness.
The evidence presented in this report raises clear policy issues and questions existing policies. A number of policy principles are formulated to guide policy makers. SHOW LESS READ MORE >
- Executive summary
- International investment in innovation
- Location factors for international investment in innovation
- Attractiveness policies for investment in innovation
- Policy principles for attracting international investment