Summary of the impact

University of Reading Professors have developed innovative theory of how Multinational Enterprises (MNEs) interact with different policy environments that has informed funding policy for research and innovation in the European Union and beyond. This work has led to the growing recognition of two policy dilemmas facing many countries' attempts to subsidise R&D activities, and their attempts to counter what was originally seen as the threat of the `hollowing out' of R&D activities to low-wage nations. Initially, Professor Rajneesh Narula identified how MNEs were reluctant to invest in R&D without a stable industrial policy. But a stable policy environment inevitably contained the potential for incumbents to gain privileged access to government support, which could disadvantage smaller firms in emerging, high technology sectors. This could result in such high-growth firms relocating from their home countries to more supportive environments overseas, with consequent negative impact on the economic well-being of the home country. Narula also recognised that as R&D activity in individual countries became more mature and more specialised, so firms would relocate some R&D activities to be closer to their ideal collaborators, many of which might be overseas. This relocation of R&D activities was, once again, not `hollowing out', but a response to increasing specialisation of R&D.

In the first instance, the appropriate policy response to the apparent threat of `hollowing out' of MNEs was for governments to invest more in subsidising R&D activities overall. In the second, it was to encourage a wider co-operation policy encompassing all forms of international research collaboration.

These ideas were incorporated into the EUs new Framework Programme for Research and Innovation — Horizon 2020 - where the focus on international collaboration beyond the EU represents a very significant departure from past EU practice. This is directly attributable to Narula's research.