Working paper

Attractiveness factors of production and innovation sites and head offices in Europe

Globalization has greatly increased possibilities of serving a national market from foreign locations and thus, to optimize individual components' production costs, which has contributed to value chains fragmentation over the past decades. Competition has developed, including between European countries, in attracting foreign direct investment on their territory.

Published on : 17/11/2020

Temps de lecture

2 minutes

Given the resulting synergies, companies tend to co-locate their production units and innovation centres within the same territory. Indeed, for a company, the presence of a production centre in France increases the probability of setting up an innovation centre by approximately 74%. In return, the presence of an innovation centre in France increases the likelihood of setting up a production centre by about 62%.

Another determining factor in the choice of location is the tax environment. France has a high corporate income tax and production tax rates. In return, it offers significant tax incentives for R&D through a generous research tax credit system. If France had the same production tax level as its partners, its share in the total number of production site creations by non-European multinationals in Europe would increase by 18%. If corporate tax rates were harmonized in Europe, France's share of company head offices would increase by 70% to achieve 13% of the total. If this were completed with the harmonization of production taxes, head offices' increase would be over 130%, reaching 17% of the total number. Conversely, its share in innovation centres set up by foreign multinationals could decrease by 30% if all European countries adopted the same level of R&D tax aid.

These results need to be confirmed and clarified by other studies, particularly in the aim to overcome two of the analysis limitations: on the one hand, the econometric study focuses solely on investments in Europe by non-European companies; on the other hand, the analysis takes into account each location decision in the same way, regardless of the amount of investment, since the latter is only provided in a limited number of cases.

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Attractiveness factors of production and innovation sites and head offices in Europe

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