Domestic and Foreign Business R&D Expenditure: Is There a Crowding Out?

Abstract

In recent years, multinational enterprises have built up considerable research and development (R&D) activities at locations outside their home countries. This trend has raised fears that overseas R&D may substitute similar activities in the home countries. To test this assumption, this paper investigates the relationship between overseas and domestic business R&D expenditure for the manufacturing sector of a number of countries in the period 2003 to 2007. The econometric analysis gives no evidence that overseas R&D expenditure substitutes domestic R&D. Thus, the results do not support the assumption that multinational firms move R&D to locations abroad to reduce their R&D efforts in the home countries.

Keywords: research and development, internationalisation, foreign-owned firms, crowding out, multinational enterprises, foreign direct investment, home country effect

JEL Classification: F230, O330, O310