Multinationals, R&D and Endogenous Productivity Asymmetries

Armando Garcia Pires

International Economic Journal, 2015, vol. 29, issue 1, 95-119

Abstract: We analyze the influence of endogenous productivity asymmetries between firms, in terms of competitiveness and size, on multinational activity. In the model, productivity depends on cost-reducing R&D (research and development). We show that when firms differ on commitment power in R&D, the R&D leader, independently of being a multinational or a domestic firm, tends to invest more in R&D than the R&D follower. Because of these productivity advantages, the R&D leader can more easily become multinational. Therefore, in addition to the proximity-concentration trade-off, we identify another FDI (foreign direct investment) determinant: technological competition.

Date: 2015
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DOI: 10.1080/10168737.2014.962560

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