Overseas R&D Activities by Multinational Enterprises: Evidence from Japanese Firm-Level Data

This paper investigates both the determinants and the impact of overseas subsidiaries' R&D activities, using firm-level panel data for Japanese multinational enterprises. We distinguish between overseas innovative and adaptive R&D and find substantial differences between the two types of R&D. The evidence suggests that overseas innovative R&D aims at the exploitation of foreign advanced knowledge, and by doing so, it helps to raise the productivity of the parent firm. In contrast, the primary role of overseas adaptive R&D is to enhance the productivity of overseas subsidiaries through the use of parent firms' knowledge. In addition, we find no complementarity between home and overseas innovative R&D, i.e., no evidence that overseas innovative R&D raises the marginal effect of home R&D on home productivity.