2009 年 39 巻 4 号 p. 823-837
R&D internationalization by multinational firms has significantly expanded in the last two decades. According to the World Investment Reports 2005, the total R&D expenditure of foreign subsidiaries in host countries worldwide rose from $29 billion to $67 billion between 1993 and 2002, and their shares in global business R&D jumped from 10% to 16%. Each country tries to attract foreign R&D investments in order to enhance national innovative capabilities through the effects of R&D spillover from foreign multinational firms. This paper analyses the effects of a promotion policy for foreign R&D investments with a two-country, two-multinational firm model. The two multinational firms, which are originally based in different countries, allocate R&D resources to their foreign subsidiary to improve foreign affiliate profitability and to source knowledge from the local foreign rival through the effects of R&D spillover. Their R&D location decisions have an impact on the effective knowledge bases and profits of the subsidiary and parent.
I show that a promotion policy for foreign R&D investment, such as subsidies for R&D internationalization costs, increases the profits of the domestic multinational firm more than the subsidies provided to the foreign multinational firm. Increased foreign firm R&D investments in a subsidiary by a subsidy policy enables the domestic firm to receive R&D spillover from the R&D activities of the foreign firm with less transfer of R&D resources to the subsidiary, which means that the domestic firm saves R&D internationalization costs and obtains a greater profit. Moreover, I show that subsidy competition to attract foreign R&D investments by both governments profits both firms and governments, because both multinational firms allocate more R&D resources to their subsidiaries and obtain more R&D spillover from the rival firm. When each firm considers its own profits, R&D investment in a subsidiary is less than optimal because they do not understand that their R&D investment improves the rival's effective knowledge base through R&D spillover. Therefore, I rationalize that both countries should provide subsidies for foreign R&D investment to each other. On the contrary, I show that both firms suffer losses, when both governments compete to restrict R&D resources that domestic multinational firms allocate to subsidiaries by preferential policies for R&D investments in their home countries. The reason is that such a policy competition causes both firms to allocate less R&D resources to the subsidiaries and decreases R&D spillover from the rival firm.
JEL classification: F23, O32, O38