Leo A. Grünfeld*
NUPI (Norwegian
Institute of International Affairs)
Abstract:
We model R&D spillovers as a motive for
firms to go multinational. The establishment of a foreign subsidiary may
increase a firm’s ability to learn from foreign R&D activity since R&D
spillovers between firms are moderated by geographical distance. As opposed to
earlier studies on this subject, we also model the concept of absorptive
capacity where spillovers are endogenised as a function of the firms’ own
R&D investments. We employ a three-stage Cournot duopoly model to identify
under what conditions a firm chooses to service a foreign market through
exports or localised production (going multinational). With exogenous R&D
investments, the absorptive capacity effect contributes to increase the gains
from going multinational when the firm is a technology leader in terms of
R&D. If R&D investments are endogenous, only medium-sized absorptive
capacity effects will result in firms going multinational. Also, higher
spillover rates do not necessarily drive down R&D and profits for the
multinational firm. This stands in contrast to models that ignore the aspect of
absorptive capacity.
* Corresponding address: NUPI, P. O. Box 8159 Dep. 0033 Oslo, Norway. Tel: (+47) 22056568. Fax: (+47) 22177015. E-mail: lag@nupi.no, URL: http://www.nupi.no