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

The research investigated the impact of multinational companies (MNCs) on the Israeli economy in terms of demand for innovation. The research focused on two main impacts: the positive externalities to the national economy stemming from the activity of foreign R&D centres in Israel and the potential loss to the economy due to the utilization of locally produced IP and know-how by MNC subsidiaries. The findings of the research show that MNCs play a pivotal role in stimulating demand for innovation in the local market. The activity of MNCs in Israel spurs demand for sophisticated goods and services, which are partially supplied by local companies (especially in the fields of software development, algorithm development, product design and supply of computer hardware and communication equipment). R&D centres contribute to the promotion of important spill-over effects between firms and within the high-technology sector in Israel. Local start-ups and small firms are the main beneficiaries from these knowledge and know-how flows which promote their integrative R&D capabilities and improve their ability to carry out complex projects. Although the contribution of MNCs to the Israeli economy is highly significant, some regulatory measures are needed to be undertaken to better safeguard Israeli IP and local know-how.