Celia Torrecillas/ Bruno B. Fischer

1. Thedynamics of knowledge- Intensiveservicesfdi in spain: towards a technologicalgravitymodel Celia Torrecillas/ Bruno B. Fischer Hungary, March 2011

2. contents Background Internationalization of services and the role of KIS Regional Innovation Systems and the Services Sectors in Spain- Madrid and Andalusia Methodology Results Discussion

3. BACKGROUND • Regional Innovation Systems (RIS) • RIS may allow a better representation of economic events . (Meliciani, 2002; Malerba,2004;Asheim&Gertler,2004 • Core region (Madrid), and peripheral region (Andalusia) of Spain. • Foreign Direct Investment ( FDI) • FDI as an agent of interaction and integration between innovation systems. • Market seeking and Asset seeking (Dunning, 2006) – The Gravity Equation

4. background(cont) • Services sector and knowledge-intensive sector (KIS) • Focus on Services and KIS due to the growing interest and importance of this sector in the developed nations in recent years (Van Welsum, 2007; Kolstad & Villanger, 2008; Ramasamy & Yeung, 2010; Roy, 2009; Head, Mayer & Ries, 2009).

5. Internationalization of services and the role of KIS • The data for internationalization analysis of services is rarely available making difficult to proceed to consistent quantitative analysis. • Services play a central role when dealing with innovation processes (OECD, 2006; Vence-Deza, 2007; Muller & Zenker, 2001; Molero-Zayas & Valadez-Sánchez, 2005; Koch & Strotmann, 2005; Muller & Doloreux, 2007). • KIS • KIS are able to influence their clients´innovative capabilities, as well as they are influenced by then, creating a strong feedback loop in innovation flows (Muller & Doloreux, 2007; Wang, Peng, Tao & Shengrong, 2008; Muller & Zenker, 2001).

6. Regional innovation Systems and the Service Sector in Spain - Madrid and Andalusia GERD as % of GDP 1995-2007 KIS as % of total Services 1995-2008 Source: OECD Stat Source: OECD Stat R&D Personnel as % of total employment Employment in KIS as % of total employment 1995-2008 Source: OECD Stat Source: OECD Stat

7. Regional innovation Systems and the Service Sector in Spain- Madrid and Andalusia PCT patentapplications per millioninhabitants Participation of KIS in total FDI Inward 1993-2009 Source: OECD Stat Source: Datainvex MITYC Participación of KIS in total FDI Outward 1993-2008 Source: Datainvex MITYC

8. Methodology • Preliminary search for empirical insights on the relevance of Regional Innovation Systems on the internationalization pattern of firms measured by FDI flows. • Emulation of an “innovation-driven” gravity model - Technological Gravity Model. • Analysis of Services Sector as a whole and also results for the specific case of KIS. • Gravity Model – FDIij = GDPj + POPj + DISTij • Technological Gravity Model - FDIij = GDPGERDj + HRj + TECHDISTij

9. Methodology(cont) • Correlations between variables of the “regular” and the “technological” gravity models in order to proceed to some initial remarks on our methodology. Variable correlation for Services Variables correlation for KIS

10. results

11. PreliminaryDiscussions • Results suggest that the technological variables might indeed play a role in the process of FDI flows, but they would be more consistent with an indirect view of their influence. The innovation systems would then have an indirect effect on FDI flows. • Our technological gravity model performs a good fit to FDI flows in comparison to the regular gravity model, but its results indicate that the technological dimensions per se are not main drivers of these investment relationships. • Our research show that the asset seeking behavior might be strategic for some companies , but it hardly represents the trend of the service sector as a whole, where market seeking still seems to be the main motive for FDI.