R&D offshoring, technology learning and R&D efforts of host country firms in emerging economies

Abstract

This paper studies how ease of learning by host country firms in emerging economies shapes decisions regarding their R&D efforts in response to R&D offshoring by multinational enterprises (MNEs). We develop a two-stage game-theoretic model to analyze strategic interaction between the R&D decisions of the foreign affiliates of MNEs and the host country firms. An empirical analysis of 12,309 manufacturing firms in the Information and Communications Technologies sector in China supports the key contributions of the model. That is, R&D offshoring has a positive effect on the R&D efforts of host country firms in emerging economies. However, the positive effect diminishes as the geographical distance between the foreign affiliates and the host country firms increases.