Citation

Discussion Paper Details

Please find the details for DP5766 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Foreign Direct Investment and R&D Offshoring

Author(s): Hans Gersbach and Armin Schmutzler

Publication Date: July 2006

Keyword(s): foreign direct investment, R&D, research relocation and spillovers

Programme Area(s): Industrial Organization

Abstract: We analyze a two-country model of Foreign Direct Investment (FDI). Two firms, each of which is originally situated in only one of the two countries, first decide whether to build a plant in the foreign country. Then, they decide whether to relocate R&D activities. Finally, they engage in product-market competition. Our main points are: first, FDI liberalization causes a relocation of R&D activities if intrafirm communication is sufficiently well developed, external spillovers are substantial, competition is not too strong and foreign markets are not too small. Second, such a relocation of R&D activities will usually nevertheless increase domestic welfare since it only occurs if intrafirm communication is well developed and therefore knowledge generated and obtained abroad flows back to the domestic country. Third, the potential of R&D offshoring makes FDI itself more likely. Fourth, when countries are asymmetric, the small-country firm is more likely to offshore its R&D activities into the large country than conversely.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5766

Bibliographic Reference

Gersbach, H and Schmutzler, A. 2006. 'Foreign Direct Investment and R&D Offshoring'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5766