Corporate R&D and Locations

We set up a model which combines the traditional corporate model of innovation with the theory of regional innovation system(RIS). It incorporates location variables into the neo-classical theory of innovation. We test the influence of location choice on the R&D activities. Our empirical result shows that location variables, i.e., whether factory, business office and headquarters are located in the capital region or not, are an important determinant for the innovative activities of firms, as emphasized by the theory of regional innovation system. Firms located in the capital region show greater tendency to innovate, which implies that location variables are as important as other explanatory variables in the traditional corporate R&D model. Furthermore, we show that the probability of locating plants inside the capital region is higher especially for the firms in high-tech industry, with higher per-employee R&D expenditure and with higher labor costs. This result can help us understand what causes the absorption of local firms into the Seoul capital region. The regional difference in RIS conditions can be a good reason.