Additionality or opportunism: Do host-country R&D subsidies impact innovation in foreign MNC subsidiaries?

Wolfgang Sofka, Christoph Grimpe (), Fuad Hasanov and Reda Cherif ()
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Christoph Grimpe: Copenhagen Business School, Department of Strategy and Innovation
Reda Cherif: International Monetary Fund

Journal of International Business Policy, 2022, vol. 5, issue 3, No 2, 296-327

Abstract: Abstract Host-country policies shape the incentives and opportunities of MNC subsidiaries to innovate. However, prior research largely ignores the agency of foreign MNC subsidiaries receiving government R&D subsidies from their host countries. Subsidiaries may increase R&D investments and innovation outputs as intended by governments or merely accept the additional funds while continuing R&D programs that they would have undertaken anyway. In this exploratory study, we investigate whether R&D subsidies trigger additional input, output, and behavioral innovation effects in foreign MNC subsidiaries. Based on longitudinal data from Germany, we find that foreign MNC subsidiaries increase their R&D investments more than comparable domestic firms in response to an R&D subsidy. Moreover, MNC subsidiaries experience comparatively stronger effects in innovation performance from subsidy-induced R&D. However, subsidies also shift attention away from the subsidiaries’ original R&D activities. We interpret our findings by integrating theory from subsidy additionality literature into models of MNC subsidiary innovation. Our findings have implications for both MNC subsidiaries and policymakers who seek to attract foreign R&D investment in a host country.

Keywords: R&D subsidies; R&D investment decisions; MNC subsidiary mandates; innovation performance; technology policy (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s42214-021-00106-9

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