The R&D activity of multinational enterprises in peripheral economies: evidence from the EU new member states

This paper explores the impact of MNEs on innovation systems and the policy options available for peripheral economies to attract and embed the R&D activities of MNEs. After developing the conceptual and policy framework, we discuss the case of the new member states from Central and Eastern Europe that joined the EU between 2004 and 2007. We analyse the evolution of the R&D activity of MNE subsidiaries since the 1980s, contrasting the new member states with the core and Mediterranean countries of the EU. This analysis is useful to illustrate some common challenges for peripheral economies, including the difficulty of building linkages with MNEs in high value adding activities; the risk of crowding-out of domestic R&D following cross-border acquisitions; the risk of external dependency; and the limitations of protectionist policies. We recommend that governments of peripheral economies focus their efforts on fostering a demand-oriented upgrading of technological capabilities and on stimulating domestic linkages and clusters around MNEs, rather than seeking to attract supply-driven R&D.