Innovation in risky markets: multinational and domestic firms in the UK regions

This paper analyses the relationship between firm engagement in innovation and perception of market risk. We conceptualise this relationship on the basis of different strands of literature, emphasising the relevance of ownership and location advantages. By exploiting a firm-level panel dataset based on the UK Community Innovation Survey for the period 2002-2008, we test whether heterogeneous innovation behaviours in relation to risk perception characterise multinationals (MNEs) and single domestic enterprises, and whether this relationship changes across regional contexts. Our results confirm previous empirical literature on the perception of obstacles to innovation: firm awareness of market risk is positively associated with the probability to engage in innovation activities. This result however is mainly driven by the behaviour of firms belonging to MNE groups. In addition, while MNEs react consistently regardless their regional context and industry, domestic firms’ innovative behaviour is negatively affected by disadvantaged external conditions provided by less dynamic regions.