Firms operate globally, undertaking research and producing and selling products and services in many locations. As a result, productivity, welfare and growth in the UK depends not only on what firms do within the national boundaries of the UK, but also on what they do abroad. While innovative activity has traditionally been thought of as one of the least mobile activities, firms are increasingly relocating innovative activity abroad.

IFS research addresses the extent to which firms from different countries have relocated their innovative activities offshore. We consider the main determinants of firms' decisions over where to locate innovative activity and how the benefits from innovative activities vary when these activities are carried out in different geographical locations. We raise the question as to what the increasing globalisation implies for policy in the UK and EU.