DP5060 Strategic R&D Location by Multinational Firms: Spillovers, Technology Sourcing and Competition

Author(s): Rene Belderbos , Elissavet Lykogianni , Reinhilde Veugelers

Publication Date: May 2005

Keyword(s): MNEs , R&D , R&D spillovers

JEL(s): D21 , F23 , L16

Programme Areas: Industrial Organization , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP5060.asp

We analyse strategic interaction in R&D internationalization decisions by two multinational firms competing both abroad and in their home markets and examine different incentives for foreign R&D faced by technology leaders and technology laggards. The model takes into account the impact of local inter-firm R&D spillovers, (non-costless) international intra-firm transfer of knowledge, and the notion that internal R&D increases the effectiveness of incoming spillovers. Greater efficiency of intra-firm transfers and greater spillovers increases the attractiveness of home R&D to the technology leader. The lagging firm in contrast increases the share of foreign R&D as overseas technology sourcing becomes more effective. Greater product market competition encourages the leading firm to engage in foreign R&D to capture a larger share of profits on the foreign market, while laggards concentrate more R&D at home to defend their home market position. The country with a stricter intellectual property rights regime attracts a larger share of R&D by both leader and laggard.