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Innovation of Foreign R&D Centers in Israel: Evidence from Patent and Firm Level Data

The research sets out to investigate the impact of multinational companies (MNCs) on the Israeli economy in terms of demand for innovation.

Two main impacts are analyzed:

  • Positive spill-overs to the national economy stemming from the collaborations of MNC subsidiaries (foreign R&D centers) with local Israeli firms.

 

  • (Potential loss to the Israeli economy from the utilization of locally produced IP and know-how by MNC subsidiaries. Firm level data, containing information on the characteristics of local and foreign companies was linked to EPO's PATSTAT database in order to capture the scope of innovation activity by these firms.

In addition, unstructured questionnaires, aimed at understating the IP policy of foreign R&D centers and exploring the ties between the centers and local Israeli firms, were sent to representatives of foreign R&D centers. The findings of the research show that the rate of transfer of Israeli IP, know-how, and technology to the possession of MNCs has substantially increased in the past decade. There is an increasing trend of obtaining Israeli IP by means of acquisition of Israeli firms and start-ups. Innovation and knowledge flows were found to run in a two-way direction, exerting positive impact on the Israeli economy. The activity of MNC subsidiaries was found to spur demand for locally produced goods and services, promote technological spill-overs to local firms (especially start-ups), and expose the junior and senior levels of Israeli management to the organizational culture of giant multinational firms.