Multinational Production and the Scope of Innovation
44 Pages Posted: 4 Mar 2015
Date Written: October 8, 2014
This research sheds light on the role of multinational production on the type of innovation performed by firms. We construct matched firm-patent data to measure the scope of innovation, that is the extent to which the output of R&D can be spread across different product lines. We focus on two features of multinational production: (i) core knowledge is geographically more difficult to transfer abroad to foreign production sites, (ii) learning spillovers can occur from international operations. The results reveal that the second effect is more likely to dominate when a firm is active in more product lines. We argue that a more diversified portfolio of products increases a firm’s span of learning from international operations, thereby enhancing its ability to engage in more fundamental research. In contrast, firms with fewer product lines that geographically separate production from innovation focus on more specialized types of R&D.
Keywords: Multinational production, Fundamental innovation, Multiproduct firms, Knowledge spillovers
JEL Classification: F12, F23, O31, O32
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