R&D investments, ownership and local firm growth

Abstract How do research and development (R&D) investments stimulate the local economy? Our paper complements and extends the voluminous literature on the externalities of R&D investments by looking at internal firm growth across regions and the “spillovers” from R&D workers on other workers within the same firm. More specifically, we examine how R&D investments affect the change in employment and productivity in the same firm over time. We also investigate the differences that come with domestic or foreign ownership. Combining data from the Swedish biennial survey series on R&D with firm and establishment registers, we find that R&D-stimulated growth is a localized phenomenon: firms tend to grow in the same regions where they invest in R&D activities. This link is particularly strong for employment effects. While we find that the positive association between R&D and labor productivity holds for all firms, growth effects on local employment are limited to domestically owned firms, especially in manufacturing. The results strengthen our understanding of the correlation between R&D and firm growth on a local level, and contribute to both the academic and policy debate on the effects of globalization on local economic growth.