Making foreign direct investment work for innovation clusters

How do new centres of technological excellence emerge? Research and Development (R&D) activities of foreign multinationals can act as powerful boosters of local innovation and growth in the cities where they invest. However, for the most innovative multinational companies, the risk of leaking knowledge to local competitors often outweighs the benefits of learning from those same competitors, thus reducing the incentives of ‘very innovative multinationals’ to embed themselves fully into the local innovation system. Riccardo Crescenzi, Arnaud Dyèvre, and Frank Neffke write that second-tier multinationals—those outside the top 20% of innovating firms—that start R&D activities in foreign regions generate more knowledge spillovers than higher ranking multinationals and consequently, foster greater growth in local innovation.