Abstract:

This paper conceptualizes the role of Israel's high technology sector as that of a node in a global production network. A node can be characterized by the intensity of the incoming and outgoing flow of information, investments and so on, that pass through it. Foreign investment is one indicator of the centrality of a node. Using case study and aggregate firm level evidence of US foreign investment in Israeli high technology, the paper tests the hypothesis that foreign involvement in the node economy is based on a rather different set of forces than those suggested by the foreign investment literature. The results seem to indicate the importance of node-type factors such as the centrality of small firms in R&D activity and labour force stability, rather than the standard determinants such as incentives, labour costs and infrastructure. The implications and policy issues relating to the development of a node economy are discussed.

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