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Multinationals, Institutions and Innovation in Europe

Periodic Reporting for period 4 - MASSIVE (Multinationals, Institutions and Innovation in Europe)

Reporting period: 2019-12-01 to 2021-12-31

This project aims to uncover the fundamental drivers of global investment flows and their impacts on national and regional economies. Understanding these ‘tectonic forces’ of the contemporary world economy calls for the conceptualisation and operationalisation of the heterogeneity of global flows of capital, knowledge and skills bundled into investment flows. Highly diversified firms, countries and regions are connected across the globe, responding to the challenges of growing internationalisation with heterogeneous strategies resulting in evolving (and sometimes conflicting) corporate behaviour and public policies.

The project investigates the location strategies of Multinational Enterprises (MNEs) and their territorial impacts by exploring the diversity of actors involved and the heterogeneity of their linkages with an innovative combination of conceptual and empirical tools. Each section of the project addresses a set of gaps in the existing literature, shedding new light on the factors shaping the economic geography of MNEs and their impacts, providing policy-makers at all levels with new tools to promote innovation, employment and economic recovery after the Great Recession. The project is organised around two key research pillars:

‘Location Strategies, Regions and Institutions’ – This Pillar aims to explore the ways in which MNEs contribute to the formation of ‘global’ pipelines / networks by exploring their geographical, institutional and socio-economic drivers as well as their directionality, nature and intensity.

‘The impacts, Institutions and Regional Innovation’ – This Pillar explores the national, regional and firm-level impacts generated by the linkages established by MNEs through global investment flow and investigates how different geographical and institutional factors can shape these processes.

The analysis and discussion of public policies for both location and impacts is a cross-cutting theme that connects the two main pillars: ‘Public Policies for Location and Impacts’ – This part of the project aims to identify the key policy lessons to be learnt from the EU Experience (and its global comparison with the rest of the world) and place them in the framework of the EU industrial and regional policy.
The project explores the links between Global Investment Flows, Foreign Investment, Global Value Chains (GVCs) and Local Development across the globe.

A complex flow of investment is spreading across the globe connecting more and more places. These flows bundle together streams of capital, skills and knowledge, the key factors in determining the development and wealth of places around the world. As a result, it is now impossible to understand economic opportunities, innovation and development without one central concept – CONNECTIVITY.

However, investment flows are highly selective and, as a result, many parts of the world are left behind. Even within countries that receive huge amounts of foreign investment, the patterns of distribution are highly unequal. In rapidly growing economies, there are still many places that feel stagnant or even in decline.

National and regional governments try all sorts of ways to attract foreign investments – offering unique tax breaks, building roads and railway lines, making it easier to hire and fire, investing in education. But they’ve been doing so, often without a serious evidence base on which to base their decisions.

That’s where this project comes in, studying what makes multinational firms tick (or not) in regions and cities across the globe and exploring how prosperous, innovative, successful regions – hubs of this enormous global flows of investment – can co-exist with places that are completely left behind. Left behind places are lending themselves increasingly more to the forces of populism and a political dis-integration. Understanding how these places can actually benefit from connectivity is paramount importance for our societies in Europe and beyond.

With eleven peer-reviewed articles already published, a book in press and nine more papers at various stages of the peer-review process, the MASSIVE project has offered answers to research questions organised in three key pillars

- Location: How and where is connectivity built? Where are hubs of capital, innovation and ideas clustering and why? What it is that gives one part of the world, one country, one city the magnetism that their neighbours lack? How strategic assets – technology, ideas and the tacit knowledge unique to certain places – are highly localised and also the key factors that investors look for.

- Impact: how investments flows are embedded or not in their host region. Is it really a given that more firms will make things better for the local economy? What types of companies will help and which will hinder? And what happens to the local economy when domestic firms invest abroad?

- Policy: how connectivity can be re-shaped by public policies. This section of the project offers hard evidence to policymakers on the questions where guesswork has driven decisions for too long – what works in practice to attract and embed foreign companies into the local economy? Where? Under what conditions? Are new investments attracted by means of public policies beneficial to the local economy or not?

The communication and dissemination channel for the results from this ERC project is the LSE Blog ‘Global Investments Local Development’:
Innovation is highly geographically concentrated and its spatial distribution tends to remain stable over time. However, the process of technological development still opens windows of opportunity for new innovation centres to emerge around the world. What makes it possible for some cities and regions to join the exclusive ‘world innovation club’? Why other places remain persistently excluded or lose their membership? What are the fundamental differences between innovative and non-innovative regions?
Scholarly and policy debates have been dominated by the attempt to identify factors at the national, regional or city level to be leveraged to ‘ignite’ innovation and boost productivity in stagnating areas of the world. Much more limited remains our understanding of the transformative power of the flows of capital, skills and knowledge bundled into increasingly complex value chains often controlled by multinational firms.
This project has developed new conceptual foundations and new empirical evidence from across the globe on the link between internationalisation, multinational firms’ strategies and regional innovation and prosperity. The project has developed new evidence on how multinationals decide where to locate different types of foreign activities along the value chain and how this process leads to the ‘matching’ between firms and host regions. The project has also shed new light on the consequences of these decisions and strategies for world cities and regions, discussing specific examples from Europe, the United States, China, India, Russia and Latin America. The third part of the project addresses the role of public policies and offers new insights on how mayors, regional governors and national governments can effectively leverage global investment flows and value chains for innovation and recovery.