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Regulations and location choices of top R&D investors worldwide

Abstract: 

This paper explores how the interaction of product market (PMR) and labour market (EPL) regulations affects the way in which top corporate R&D investors organise their cross-border operations worldwide. The analysis uses location specific framework conditions, 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 PMR and 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.