From Learning To Partnership: Multinational R&D Cooperationin Developing Countries

This paper is a first attempt to analyse the determinants of inter-firm R&D agreements between advanced and developing countries, i.e. between firms with asymmetric endowments of knowledge. It shows that international dispersion of R&D activity by multinationals also concerns developing countries, particularly the NICs. Indeed, both our theory and empirical evidence show that R&D can be carried out via aml-length agreements, even between partners with asymmetric endowments of knowledge. The paper develops a thcorelical model which brings together some of the central assutnptions of the literature on R&ll cooperation and of the literature on hierarchical transfer of technology. A niultinational has the option between setting up a subsidi;uy and competing with a local firm in a duopoly, or implementing an agreement and share monopoly profits. The two firms, if they choose the agreement, may also cooperate it1 R&D. The model shows that. K&D coopcration increases both the profitability and the stability of the agreement. the latter as far as it affects the long term relationship of trust between the partners. The niodel also shows that R&D cooperation is more likely when asymmctries in R&D efficiency between the partners are not loo large. Spillovers have an ambiguous role. They must be largc enough to induce firms to form an arm-length agreement, but if they are too large they discourage R&D cooperation. The empirical analysis is based on a data set of international arm-length agreements. By testing a dichotomous choice model it supports some of the key theoretical results and assumptions: R&D ngreenlents are particularly likely to emerge when firms have a nun-hierarchical relationship, in knowledge intensive industries and when technological asymmetries between home and host countries are not too large. Indeed most R&D agreements are concentrated in the NlCs which have relatively advanced industrial bases and capabilities.