R&D and foreign direct investment with asymmetric spillovers

Maria Luisa Petit, Francesca Sanna-Randaccio () and Roberta Sestini

Economics of Innovation and New Technology, 2012, vol. 21, issue 2, 125-150

Abstract: This paper analyzes how firms’ R&D investment decisions are affected by asymmetries in knowledge transmission, considering different sources of asymmetry such as unequal know-how management capabilities and spillovers localization within an international oligopoly. We show that a better ability to manage knowledge flows incentivizes the firm to invest more in R&D. By introducing geographically bounded spillovers, we also find that one-way foreign direct investment (FDI) stimulates the multinational enterprise to raise its own R&D and that an FDI equilibrium is more likely to occur. Finally, spillovers localization leading to two-way FDI is welfare improving when compared with non-localized spillovers.

Date: 2012
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DOI: 10.1080/10438599.2011.561994

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