The effect of public Polices on the attractiveness of emerging countries for the development of innovation activities by multinational firms

Abstract

Multinational firms contribute to the development of innovative capacity in countries where they establish subsidiaries and research centers. However, they still conduct most of their R&D at home or in developed countries’ based subsidiaries. The resources offered by the host country affect the level of local R&D, and they constitute what Dunning calls the L (location) variable of his Eclectic Paradigm of International Production. It includes a big domestic market, availability of qualified and low-cost professionals, technological (universities and research institutes) and communication infrastructure, protection of intellectual property rights, commercial policies and the scale of the national technological effort. These aspects define the type and scope of R&D that will be done locally. The article aims at showing that emerging countries need a strong action from the government, in order to improve their attractiveness to MNCs. The Brazilian Informatics Act is an example of a successful policy, which attracted many foreign companies, in exchange of tax incentives and the requirement of local R&D activities. The results are based on interviews with a group of firms established in the Campinas region.