From Learning to Partnership. Multinational R&D Cooperation in Developing Countries

This paper is a first attempt to analyse the determinants of inter-firm R&D agreements between advanced and developing countries, i.e. between firms with asymmetric endowments of knowledge. It shows that international dispersion of R&D activity by multinationals also concerns developing countries, particularly the New Industrialized Countries (NICs). Indeed, both our theory and empirical evidence show that R&D can be carried out via arm’s-length agreements, even between partners with asymmetric endowments of knowledge. The paper develops a theoretical model which brings together some of the central assumptions of the literature on R&D cooperation and of the literature on hierarchical transfer of technology. A multinational has the option between setting up a subsidiary and competing with a local firm in a duopoly, or implementing an agreement and sharing monopoly profits. The two firms, if they choose the agreement option, may also cooperate in R&D. The model shows that R&D cooperation increases both the profitability and the stability of the agreement. The model also shows that R&D cooperation is more likely when asymmetries in R&D efficiency between the partners are not too large. Spillovers have an ambiguous role; they must be large enough to induce firms to form an arm’s-length agreement, but if they are too large they discourage R&D cooperation. The empirical analysis is based on a data set of international arm’s-length agreements. By testing a dichotomous choice model, it supports some of the key theoretical results and assumptions: R&D agreements are particularly likely to emerge when firms have a non-hierarchical relationship, in knowledge-intensive industries, and when technological asymmetries between home and host countries are not too large. Indeed, most R&D agreements are concentrated in the NICs which have relatively advanced industrial bases and capabilities.