The interdependence between FDI and R&D: an application of an endogenous switching model to Taiwan's electronics industry

Huilin Lin and Ryh-Song Yeh

Applied Economics, 2005, vol. 37, issue 15, 1789-1799

Abstract: Foreign direct investment (FDI) and research & development (R&D) are mutually dependent and should be treated as endogenous variables in empirical studies. An endogenous switching regression model is used to examine the mutual effect of FDI and R&D in Taiwan's electronics industry. The empirical results show that FDI and R&D are positively related and do reinforce each other. Unbiased coefficients are obtained as they are compared to those estimates if FDI and R&D are treated as exogenous variables. The results have a strong public policy implication for Taiwan's foreign direct investment and can be further used to estimate the difference in R&D expenditures between FDI and non-FDI firms.

Date: 2005
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DOI: 10.1080/00036840500217093

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