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R&D and foreign direct investment with asymmetric spillovers

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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.

Keywords: F23; L13; O33; R&D; foreign direct investment; innovation; multinational firms; spillovers

Document Type: Research Article


Affiliations: Department of Computer and System Sciences,Sapienza Università di Roma, Via Ariosto 2500185,Rome, Italy

Publication date: March 1, 2012

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