Policies to attract R&D-related FDI in Chile: Aligning incentives with local linkages and absorptive capacities

Over the last decade we have witnessed an unprecedented growth in the number of cross-border R&D investments towards developing countries. Large emerging economies like China or India have become the first destination of R&D-related investments in the world. Latin America, however, has played a rather marginal role as recipient of R&D-related FDI – barely 3.7% of the world total between 2003 and 2013. In an effort to revert this trend, several countries in the region have launched new policy programs and incentives to enhance their attractiveness for R&D-related FDI. However, it remains uncertain whether public incentives can compensate for other locational disadvantages that characterize Latin American innovation systems. The case of Chile provides an interesting empirical setting to explore these issues, because since the early 2000s its government is actively promoting R&D-related FDI through a new policy mix. This policy mix encompasses various grants and tax incentives, targeting not only multinational corporations but also foreign start-ups, universities and public research institutes. Rather than limiting the scope of our analysis to individual policy instruments, we also consider the complementarities and synergies among them. We emphasize that for national innovation systems to benefit from R&D-related FDI it is important to ensure that appropriate linkages are established with local actors that hold absorptive capacities. Equally important for a small emerging economy like Chile is to prioritize R&D-related FDI in strategic technology areas where the country can realistically attain critical mass to compete globally.