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The IT Revolution and the Globalization of R&D

In: Innovation Policy and the Economy, Volume 19

Author

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  • Lee G. Branstetter
  • Britta Glennon
  • J. Bradford Jensen

Abstract

Since the 1990s, research and development (R&D) has not only become less geographically concentrated, but there has been especially fast growth in less developed emerging markets like China and India. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/information technology (IT) domain. The increase in foreign R&D on the firm side has been largely concentrated within software and IT-intensive multinational corporations (MNCs). This concentration is mirrored on the country side; new R&D destinations such as India, China, and Israel look very different in the types of innovative activity being done there than older R&D destinations such as Germany, France, the United Kingdom, Canada, and Japan. In this paper we will document three important phenomena: (1) the globalization of R&D by US MNCs, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs and the differences in the type of activity done there. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of science, technology, engineering, and mathematics (STEM) workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access an increasingly global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.
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Suggested Citation

  • Lee G. Branstetter & Britta Glennon & J. Bradford Jensen, 2018. "The IT Revolution and the Globalization of R&D," NBER Chapters, in: Innovation Policy and the Economy, Volume 19, pages 1-37, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:14094
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    References listed on IDEAS

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    1. Benjamin F. Jones, 2009. "The Burden of Knowledge and the "Death of the Renaissance Man": Is Innovation Getting Harder?," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 283-317.
    2. Nicholas Bloom & Charles I. Jones & John Van Reenen & Michael Webb, 2020. "Are Ideas Getting Harder to Find?," American Economic Review, American Economic Association, vol. 110(4), pages 1104-1144, April.
    3. Edwin Mansfield & David Teece & Anthony Romeo, 2008. "Overseas Research and Development by US-Based Firms," World Scientific Book Chapters,in: The Transfer And Licensing Of Know-How And Intellectual Property Understanding the Multinational Enterprise in the Modern World, chapter 12, pages 297-306 World Scientific Publishing Co. Pte. Ltd..
    4. Walter Kuemmerle, 1999. "The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 30(1), pages 1-24, March.
    5. Chad Syverson, 2011. "What Determines Productivity?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 326-365, June.
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    9. Richard B. Freeman, 2006. "People Flows in Globalization," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 145-170, Spring.
    10. Lee Branstetter & Britta Glennon & J. Bradford Jensen, 2018. "Knowledge Transfer Abroad: The Role of U.S. Inventors within Global R&D Networks," NBER Working Papers 24453, National Bureau of Economic Research, Inc.
    11. Ashish Arora & Alfonso Gambardella, 2005. "The Globalization of the Software Industry: Perspectives and Opportunities for Developed and Developing Countries," NBER Chapters, in: Innovation Policy and the Economy, Volume 5, pages 1-32, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Chinloy, Peter & Jiang, Cheng & John, Kose, 2020. "Investment, depreciation and obsolescence of R&D," Journal of Financial Stability, Elsevier, vol. 49(C).

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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