Capital outflow and R&D investment in the parent firm

Shu-Chin Huang

Research Policy, 2013, vol. 42, issue 1, 245-260

Abstract: Outward foreign direct investment (OFDI) from emerging countries to relatively low-wage countries has raised important questions about its impact on domestic technological development because of the small gap in terms of a technological lead. This paper develops hypotheses linking the impact of OFDI on R&D-investment growth in the parent firm to the underlying motivation for investment and firm size. These hypotheses are tested using available data from Taiwanese information and electronics firms for 1993–2008. The findings are that the R&D growth is not only relevant to conventional factors, such as the knowledge stock, demand factors and institutions, but is also importantly explained by the firm's long-term investment in the home country and abroad, and the industry's OFDI and IFDI. This paper also shows that home R&D growth is negatively relevant to the wage gap between the home and the host country, and changes in OFDI policies can significantly affect the R&D growth. The implications are that multinationals have important reasons for investing abroad. An open economy can maintain a technological lead only by improvements in its domestic R&D environment and by encouraging R&D entrepreneurship and social responsibility to promote long-term and R&D investments locally.

Keywords: Research and development; Foreign direct investment; Information and electronics; Technology policy; Long-term investment (search for similar items in EconPapers)
JEL-codes: F23 O38 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:42:y:2013:i:1:p:245-260

DOI: 10.1016/j.respol.2012.04.018

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