The Returns to Foreign R&D

40 Pages Posted: 11 Oct 2014

See all articles by René Belderbos

René Belderbos

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation; Maastricht University - Department of Organization & Strategy

Boris Lokshin

Maastricht University, School of Business and Economics

Bert M. Sadowski

Eindhoven University of Technology (TUE)

Date Written: October 2014

Abstract

Extant research on R&D internationalization has not examined how effective foreign R&D investments are in generating positive returns for the investing firms, in particular in comparison and conjunction with the effects of domestic R&D investments. We examine the effectiveness of international knowledge sourcing through foreign R&D in an empirical analysis of the productivity effects of foreign and domestic R&D investments in a large panel of firms based in the Netherlands. We argue that foreign and domestic R&D will exhibit complementarity in their effects on productivity, but that the roles of domestic and foreign R&D depend on the relative position of the home country with respect to the global technology frontier and the related relative opportunities for knowledge sourcing abroad. We estimate a dynamic panel data model derived from a knowledge stock augmented production function framework allowing for productivity convergence and declining returns to R&D. We confirm that for firms active in industries in which the home country is behind the global technology frontier, foreign R&D provides positive returns and has a complementary relationship with domestic R&D. For industries at the global technology frontier, in contrast, domestic R&D is the primary source of productivity growth.

Keywords: Foreign R&D, multinational enterprises, innovation, productivity

JEL Classification: O32, O33, D24

Suggested Citation

Belderbos, Rene and Lokshin, Boris and Sadowski, Bert M., The Returns to Foreign R&D (October 2014). Available at SSRN: https://ssrn.com/abstract=2507824 or http://dx.doi.org/10.2139/ssrn.2507824

Rene Belderbos (Contact Author)

University of Leuven (KUL) - Department of Managerial Economics, Strategy and Innovation ( email )

Naamsestraat 69
Leuven, B-3000
Belgium
+32 16 32 6912 (Phone)
+32 16 32 6732 (Fax)

Maastricht University - Department of Organization & Strategy ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Boris Lokshin

Maastricht University, School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3697 (Phone)
+31 43 325 4893 (Fax)

Bert M. Sadowski

Eindhoven University of Technology (TUE) ( email )

PO Box 513
Eindhoven, 5600 MB
Netherlands
0031402475510 (Phone)

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