Internationalisation of Research and Development: Determinants, Effects and Policy

The internationalisation of economic activity is increasingly extending also to research and development (R&D). In some quarters there is a concern that this trend may erode the domestic knowledge base. Against this background, the present article first investigates into the determinants of foreign investment in R&D ("outward"-R&D). Empirical studies show that the OLI-model developed by Dunning and the "stages view of internationalisation" grounded in evolutionary economics lend themselves to identify the main drivers of outward-R&D. In a second step, we deal with the consequences of outward-R&D on the performance of both the parent company and other domestic firms which potentially draw benefits from the transfer of knowledge or technology (spill-overs). According to the empirical literature, both effects are positive: in other words, contrary to the concerns referred to, outward-R&D actually comes as support to the knowledge base and productivity of the domestic economy. Empirical evidence also suggests that the countries receiving R&D investment from foreign companies ("inward"-R&D) benefit in two ways: directly, by an increase in the innovative capacity of the economy, and indirectly via spill-overs from foreign subsidiaries to domestic firms.