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Foreign and Domestic R&D Investment

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Author Info
Rene Belderbos
Kyoji Fukao
Tomoko Iwasa

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Abstract

A considerable share of R&D investment is due to multinational firms that simultaneously operate R&D bases at home and abroad. The existing empirical literature on R&D investment has however ignored the possibility that domestic and foreign R&D investments are simultaneously decided. In this paper, we draw on the technological opportunity, appropriability, and demand framework suggested by Cohen and Klepper (1996) to develop a simple model of foreign and domestic R&D investment. We test the model's predictions concerning the ratio of foreign to domestic R&D investment on a sample of 146 Japanese multinational firms' R&D investments in Japan and the United States in 1996. The empirical results confirm that the foreign R&D ratio depends on relative technological opportunities, relative demand conditions, and a proxy for firm-level R&D productivity. When differentiating between research and development activities, foreign research is driven by technological opportunity and foreign development by the demand factor, as expected.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Hi-Stat Discussion Paper Series with number d05-140.

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Date of creation: Feb 2006
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Handle: RePEc:hst:hstdps:d05-140

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Related research
Keywords: R&D; multinational firms; Foreign Direct Investment;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D

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References listed on IDEAS
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  1. James R. Hines, Jr., 1994. "No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals," NBER Chapters, in: Tax Policy and the Economy, Volume 8, pages 65-104 National Bureau of Economic Research, Inc. [Downloadable!]
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  2. Richard Levin & Peter C. Reiss, 1984. "Tests of a Schumpeterian Model of R&D and Market Structure," NBER Chapters, in: R & D, Patents, and Productivity, pages 175-208 National Bureau of Economic Research, Inc. [Downloadable!]
  3. Kuemmerle, Walter, 1998. "Optimal scale for research and development in foreign environments--an investigation into size and performance of research and development laboratories abroad," Research Policy, Elsevier, vol. 27(2), pages 111-126, June. [Downloadable!] (restricted)
  4. Michael P. Devereux & R. Glenn Hubbard, 2000. "Taxing Multinationals," NBER Working Papers 7920, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Belderbos, Rene, 2001. "Overseas innovations by Japanese firms: an analysis of patent and subsidiary data," Research Policy, Elsevier, vol. 30(2), pages 313-332, February. [Downloadable!] (restricted)
  6. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-40, June. [Downloadable!] (restricted)
  7. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August. [Downloadable!] (restricted)
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  8. Cohen, Wesley M & Klepper, Steven, 1996. "Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 232-43, May. [Downloadable!] (restricted)
  9. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier. [Downloadable!] (restricted)
  10. Roper, Stephen, 1999. " Under-Reporting of R&D in Small Firms: The Impact on International R&D Comparisons," Small Business Economics, Springer, vol. 12(2), pages 131-35, March. [Downloadable!] (restricted)
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  11. Ariel Pakes & Mark Schankerman, 1980. "An Exploration into the Determinants of Research Intensity," NBER Working Papers 0438, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Cohen, Wesley M & Klepper, Steven, 1996. "A Reprise of Size and R&D," Economic Journal, Royal Economic Society, vol. 106(437), pages 925-51, July. [Downloadable!] (restricted)
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