Regional Economic Integration and R&D Investment

24 Pages Posted: 6 Dec 2007

See all articles by Alvaro Cuervo-Cazurra

Alvaro Cuervo-Cazurra

Northeastern University - Department of International Business and Strategy

C. Annique Un

Northeastern University - International Business & Strategy

Abstract

We analyze the influence of a regional economic integration agreement (REIA) on a firm's investments in research and development (R&D). A country's entry into a REIA creates two competing influences on the firm's R&D investments. On the one hand, increased competition in product markets after the REIA would induce the firm to invest in internal R&D to improve its distinctive technological competitiveness. On the other hand, better access to sources of inputs in factor markets after the REIA would induce the firm to purchase external R&D because it can outsource technology more easily. Surprisingly, the empirical analysis shows that the REIA's impact on R&D investment is driven primarily by product markets rather than by factor markets. After the REIA, product markets induce firms not only to invest more in internal R&D but also purchase more external R&D. In contrast, after the REIA factor markets have limited influence on internal or external R&D investments.

Keywords: R&D, regional economic integration, product markets, factor markets

JEL Classification: L2, O3

Suggested Citation

Cuervo-Cazurra, Alvaro and Un, C. Annique, Regional Economic Integration and R&D Investment. Research Policy, Vol. 36, pp. 227-246, 2007. Available at SSRN: https://ssrn.com/abstract=1059862

Alvaro Cuervo-Cazurra (Contact Author)

Northeastern University - Department of International Business and Strategy ( email )

D'Amore-McKim School of Business
313 Hayden Hall, 360 Huntington Avenue
Boston, MA 02115
United States
16173736568 (Phone)
16173738628 (Fax)

HOME PAGE: http://cuervo-cazurra.com

C. Annique Un

Northeastern University - International Business & Strategy ( email )

Boston, MA 02115
United States

HOME PAGE: http://anniqueun.com/

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