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Foreign direct investment and R&D-offshoring

  • Hans Gersbach
  • Armin Schmutzler

We analyse a two-country model of Foreign Direct Investment (FDI) and R&D-offshoring. In the basic model, two firms, each of which is originally situated in only one of the two countries, first decide whether to build a plant abroad. Then, they decide whether to relocate R&D activities offshore. Finally, they engage in product-market competition. In this model, FDI liberalization causes a relocation of R&D activities if intrafirm communication is sufficiently well developed, external spillovers are substantial, competition is not too strong and foreign markets are not too small. Surprisingly, such a relocation of R&D activities usually nevertheless increases domestic welfare. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 63 (2011)
Issue (Month): 1 (January)
Pages: 134-157

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Handle: RePEc:oup:oxecpp:v:63:y:2011:i:1:p:134-157
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