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From learning to partnership: multinational research and development cooperation in developing countries

Giorgio Barba Navaretti () and Carlo Carraro ()

No 1662, Policy Research Working Paper Series from The World Bank

Abstract: The authors analyze the determinants of interfirm agreements between industrial and developing countries for research and development (R&D) - that is, between firms with asymmetric endowments of knowledge. They develop a model in which a multinational has two options: a) setting up a subsidiary and competing with a local firm in a duopoly, or b) implementing an agreement and sharing monopoly profits. The two firms, if they chose the agreement, may also cooperate in R&D. The model shows that: a) the choice of cooperating in R&D is influenced by the intertemporal preferences of the developing country firm, the relative efficiency in R&D of the two firms, and the extent of knowledge spillovers; and b) the choice of cooperating R&D increases both the profitability and stability of the agreement. The empirical analysis is based on a data set of international arm's length agreements, part of which involve joint R&D. Testing the two-choice model supports some of the key theoretical results and assumptions. R&D agreements are particularly likely to emerge when firms are operating in knowledge-intensive industries, when the partners have a nonhierarchical contractual relationship, and when technological asymmetries between home and host countries exist but are not too great.

Keywords: Economic Theory&Research; Agricultural Knowledge&Information Systems; Scientific Research&Science Parks; Environmental Economics&Policies; Small and Medium Size Enterprises; Economic Theory&Research; Environmental Economics&Policies; Scientific Research&Science Parks; Science Education; Agricultural Knowledge&Information Systems (search for similar items in EconPapers)
Date: 1996-10-31
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