Competition among countries to attract the research and development (R&D) activities of multinational enterprises has increased substantially during the last years, but the strategies used by governments in this competition still remain largely unexplored. This paper addresses that gap by proposing a taxonomy of the policy instruments available to stimulate inward R&D-intensive foreign direct investment (FDI) and presenting the results of a comparative case study of two EU countries: Spain and Ireland. The main conclusion is that an efficient promotion of R&D-intensive FDI calls for a closer connection between innovation policy and inward investment promotion, which are two policy areas that have traditionally operated rather separately. In addition, investment promotion agencies targeting R&D-intensive FDI are advised to reconfigure the scope of services they provide by placing more emphasis on after-care, since R&D-intensive FDI tends to be evolutionary rather than purely greenfield.
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Fiscal incentives consist in a favourable tax treatment to R&D expenditure and may take the form of accelerated depreciation, tax credits, tax holidays or import tariff exemptions. Financial incentives refer to the direct funding of enterprise R&D projects by the government through grants or subsidies, preferential loans (including interest allowances) or equity stakes (Mudambi 1999; IBFD 2004).
Creating a specific agency to promote and facilitate inward FDI has become a standard practice worldwide, but some governments (especially at the regional or local level) do not establish an independent agency but rather a department or directorate within the existing bureaucracy (OECD 2006).
For example, the Policy Framework for Investment of the OECD, the Investment Promotion Toolkit of the World Bank/MIGA, or the Guidelines for Investment Promotion Agencies of UNIDO.
The complete list of interviewees is available from the author upon request.
IDA Ireland has around 280 employees and its expenditure in 2005 was 150 million euro while INTERES had 20 employees in 2007 and an annual budget of around 3 million euro, and the biggest regional IPAs in Spain, Madrid and Catalonia, have 13 and 20 employees, respectively (and refused to disclose their annual budget during our interview).
This incentive has the advantage of being easier to apply for and to control, and of being more focused on creating employment in R&D. In addition, it is attractive not only for firms that declare a profit but also for those with losses (which would not benefit from a tax deduction).
Sources: interview with Sean Dorgan, CEO of IDA Ireland (January 2007) and Irish Ministry of Enterprise, Trade and Employment, Press Release (March 14, 2006).
The complete list is available from the author upon request.
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Thanks are due to the Institute of International Integration Studies (IIIS) of Trinity College Dublin for hosting me as a visiting researcher while developing this paper, and especially to Frances Ruane for her invaluable contribution.
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Guimón, J. Government strategies to attract R&D-intensive FDI. J Technol Transf 34, 364–379 (2009). https://doi.org/10.1007/s10961-008-9091-1
- Multinational enterprises