The regional benefits from large-scale plant entry
Technology Diffusion numerous attempts to assess the impact of FDI on local economies, there remains a lot of uncertainty. Recent work has evaluated the impact of large US companies opening plants on innovation at the county level. Comparing citations and production in selected counties with those that were not considered for the new plant, we found that firm entry results in a significant increase in the number Technology Diffusion of patent citations. Local inventors also produce higher quality patents, and have a wider network of co-authors. In this way, incentives to large companies for investment could be partially compensated by future innovation and productivity.
Cross-border investment flows are a unique trait of modern economies and have been steadily increasing over the past two decades. According to the World Bank data, 2016 saw net flows of 2.86 trillion dollars, despite a significant decline following the Great Recession. The effects of these investments on host countries have been the subject of intense debate. There is no consensus about the overall impact. These investments should have a positive impact on host areas. Innovation and technology retail technology group transfer are key to economic growth.
Local firms can reap the benefits of being close to innovation sources or plants using these technologies. Direct contact is important in knowledge diffusion. Knowledge is difficult to appoint. Research has shown that knowledge flows are influenced by geographic proximity. This helps inventors connect.
We recently examined 49 large plant openings in the US between 1983 and 1992 to determine if proximity with large companies promotes technology diffusion and local innovation. We use this information to compare patents of local inventors with citations – the “paper trail of know flow” – to the entering firm patents in the counties where the firm chose to locate (“Winning”) as well as in the counties that the firm did not select at the end of the decision process (“Losing”)
Location and Technology Diffusion Flow
In order to know the stock of patents held by the entering firm, it is important that they are close together. Figure 1 shows that the patents of the entering firm are cited in 0.0019 more countries than those in the losing. Although the effect is small, it represents an 86% increase in the average citation probability per year. This is especially true for new patents that are more closely related to recent technological developments in the industry, and less likely to already be known by local inventors.
