EU Science Hub

The ERA of International R&D Investments

The internationalization of highly knowledge-intensive activities of multinational enterprises (MNEs) has triggered competition at multiple, interrelated geographical levels. Not merely countries, but urban areas within countries, and regional integration blocs compete to attract activities such as research, development, design or testing. This study assesses the role of local, national and supranational factors influencing MNEs’ decisions about where to locate knowledge-intensive foreign direct investments. In order to better understand the complex nature of competition, we compiled socio-economic information for 277 comparable urban areas – cities and their agglomeration, with a population of at least half a million – located in 28 countries across the world. Estimating nested logit models with different nesting structures, we show that supranational integration blocs’ borders do matter when firms decide the location of their knowledge-intensive activities. Both supranational and national borders play an important role in Europe, while national borders seem more relevant in North America. The findings support the role of EU policy instruments, such as the European Research Area (ERA), aimed at creating an integrated research and innovation area in Europe.