Regulations and location choices of top R&D investors worldwide

Abstract

This paper explores how the interaction of different framework conditions affect the way in which top corporate R&D investors organise their cross-border operations worldwide. The analysis uses location-specific aspects, socio-economic factors and other controls common in the economic geography literature to investigate the distribution of a company's international subsidiaries. The location drivers are estimated using a multilevel mixed-effects logistic regression, controlling for both country characteristics and company specific random effects. Our results confirm that framework conditions, as product market regulation (PMR) and labour market legislation (EPL), affect the location strategies of top R&D investors. Adding to the literature we also found that: (i) PMR and EPL exert a mutually reinforcing negative effect on the location of subsidiaries, (ii) the effect of EPL is not significant for low levels of PMR, and (iii) barriers to trade and investment is the PMR component with the largest negative effect. Policy implications are drawn accordingly.