The seductive power of Irish rain : location determinants of foreign R&D investments in European regions

Foreign direct investments (FDI) in research and development (R&D) are important catalysts of economic development. Through a diversity of direct and indirect policy measures, governments compete in attracting such investments. Our study investigates the factors that affect the degree of attractiveness of European regions from the perspective of a company investing abroad based on evidence gathered from all the FDI in R&D realized between 2003 and 2014. We use mixed logit models to assess: i) the relative importance of the factors influencing the choice made by multinational firms about where to locate foreign R&D investments to European regions, and ii) how such influences vary according to timing, investments' area of provenience and industry. On average, the fiscal regime and the size of destination regions as well as the sharing of a common language in the sending and receiving regions are the most important determinants. Labor costs, technological strength and R&D expenditure, especially performed by the higher education sector, are also important, yet to a lower extent. The strength of determinants still varies greatly across considered breakdowns.