The Making of a High Technology Node ; Foreign Owned Companies in Israeli Industry

Abstract

This paper conceptualizes the role of Israel's high technology sector as that of a node in a global production network. In such a system, the role of the individual node and its' centrality is measured by the volume of its' interactivity with other nodes. Each node can characterized by the intensity of the incoming and outgoing flows of information, investments and so on, that pass through it. Foreign investment is one indicator of the centrality of a node. In this node/network structure, much of the classic rationale for investing abroad (incentives, cheap inputs and even market penetration), is of limited validity. This paper attempts to empirically measure this node function. This is done at two spatial levels. At the global level, a case study of US semiconductor direct investment in Israel is presented. This looks at the local and non-local linkages in the production of leading-edge IC products in the mid 1980's. At the national level, a firm level analysis is presented of the locational behavior of foreign-owned companies in Israeli industry and its1 determinants. Using a unique data base - the Dun and Bradstreet file on foreign-owned firms in Israel - the spatial behavior of these firms is modeled. The results seems to indicate the importance of 'node-type' factors such as the centrality of small firms in R&D activity and labor force stability, rather than the standard determinants such as incentives, labor costs and infrastructure.