Foreign acquisition,plant survival,and employment growth

Abstract This paper analyzes the effect of foreign acquisition on survival and employment growth of targets using data on Swedish manufacturing plants. We separate targeted plants into those within Swedish MNEs, Swedish exporting non‐MNEs, and purely domestic firms. The results, controlling for possible endogeneity of acquisition using IV and propensity score matching approaches suggest that acquisition by foreign owners increases the lifetime of the acquired plants only if the plant was an exporter. The effect is robust to controlling for domestic acquisitions and differs between horizontal and vertical acquisitions. We find robust positive employment growth effects only for exporters and only if the takeover is vertical.     

Entry of foreign firms and the R&D behaviour: a panel data study of domestic and foreign firms in China's manufacturing sector

Rapid globalization has resulted in increased competitive pressures. The entry of foreign firms in a host economy increases the level of competition faced by not only the domestic firms but also the existing foreign firms. We argue that domestic firms, especially in developing countries, respond to this situation by increasing their research and development (R&D) spending, whereas the foreign firms decrease their R&D spending. By making use of firm-level panel data from China's manufacturing sector, over the period 2005–2007, this paper investigates the impact of the entry of foreign firms on R&D behaviour of domestic and foreign firms. Empirical analysis, based on Tobit and Instrumental Variables Tobit regression, reveals that foreign entry increases the R&D intensity of domestic firms but its impact on R&D intensity of foreign firms is negative. The estimated results are found to be robust across balanced and unbalanced panels.     

Should countries block foreign takeovers of R&D champions and promote greenfield entry?

Abstract In R&D intensive industries, governments promote greenfield foreign investments, while being sceptical towards foreign acquisitions of domestic high‐quality firms. We develop a theoretical model that shows that foreign acquisitions are conducive to high‐quality targets because of strategic effects on the sales price. However, foreign firms ‘cherry pick’ high‐quality targets to expand R&D rather than to downsize. Otherwise, rivals expand R&D, making the acquisition unprofitable. Thus, our model predicts that acquired affiliates invest more in R&D than greenfield affiliates. Using affiliate data, we find evidence that acquired affiliates have a higher level of sequential R&D intensity than greenfield affiliates.     

Domestic R&D,Foreign Direct Investment and Welfare

This paper provides a new rationale to examine the two‐way relationship between domestic research and development (R&D) and foreign direct investment (FDI), as well as their impacts on domestic welfare. Our analysis is based on the strategic interaction in cost‐reducing investment decisions between domestic firms and a foreign firm, which is different from the common factors that are discussed in the literature such as spillovers and technology sourcing. Our results are as follows. We show that domestic R&D investment may either increase or decrease the foreign firm's FDI incentives. Further, depending on the marginal cost of domestic firms, domestic R&D incentives can always increase regardless of the effects of domestic R&D investment on the foreign firm's FDI decision. Finally, we find that domestic welfare improves under domestic cost reduction if the slope of the marginal cost of domestic R&D investment is sufficiently small.     

R&D spillover effects on firms’ export behavior: evidence from South Korea

This paper investigates the spillover effects of R&D investments made by foreign multinational enterprises (MNEs) and domestic firms on their export activities, using a manufacturing firm-level panel dataset from South Korea. The theoretical framework predicts two conflicting spillover effects: positive technology spillovers and negative market rivalry spillovers. Thus, the net spillover effect is determined by the relative degree of the two conflicting spillovers. The empirical results show that negative intra-industry spillovers exist from the R&D of foreign MNEs on the export performance of firms, which implies that, in general, negative market rivalry spillovers dominate positive technology spillovers. However, notably, in the case of firms equipped with absorptive capacity, the negative spillovers can be alleviated; firms can gain positive spillovers by muting negative ones. Firms without absorptive capacity cannot avoid such negative effects. This paper shows that absorptive capacity is vital in capturing positive spillovers as firms build competency by accumulating their own know-how and improving their ability to capture better external technologies.     

NON‐UNIFORM STRATEGIC TRADE POLICY AND AGGREGATE PROFIT CREATION EFFECT

This paper illustrates a new theoretical case for a strategic R&D policy in a two‐country third‐market international oligopoly model. Asymmetric treatment of domestic firms through a non‐uniform R&D policy can create aggregate profits without a foreign retaliation concern and further improve national welfare in addition to what a uniform policy accomplishes. This effect occurs when the conventional Brander–Spencer incentive is entirely absent as well as when the uniformly optimal R&D policy initially prevailed. The superiority of non‐uniform policy to uniform‐policy is not guaranteed, however, when the number of firms becomes endogenous.     

Does Firm Size make a Difference? Analysing the Effectiveness of R&D Subsidies in East Germany

We analyse the impact of public subsidies on private sector research and development (R&D) activity for a sample of East German firms. Using propensity score matching, our empirical results indicate that subsidized firms indeed show a higher level of R&D intensity (R&D expenditures relative to total turnover) and a higher probability for patent application compared with non‐subsidized firms. We find that, on average, the R&D intensity increases from 1.5% to 3.9%. The probability of patent application rises from 20% to 40%. These results closely match earlier empirical findings for East Germany. Given the fact that the East German innovation system is particularly driven by small‐ and medium‐sized enterprises (SMEs), we draw special attention to the effectiveness of R&D subsidies for this latter subgroup. Here, no specific empirical evidence is available so far. Our findings indicate that policy effectiveness also holds for private R&D activity of SMEs, with the highest increase in terms of R&D intensity being estimated for microbusinesses with up to ten employees.     

Is the effect really so large? Firm‐level evidence on the role of FDI in a transition economy1

Foreign subsidiaries usually perform better than domestic enterprises, but selection effects have been acknowledged in the literature. This article contributes by quantitatively evaluating the size of the selection effects and direct effects of FDI entry. We use a large panel of firm‐level data from Poland and match foreign‐owned firms to a control group of non‐foreign‐owned companies and analyse various performance indicators. In terms of efficiency measures, between 50 and 70 percent of the foreign affiliates advantage may be attributed to direct ownership effects. However, in the case of export intensity, the majority of the differential between the domestic companies and foreign subsidiaries is attributable to selection effects: MNEs choose export‐oriented companies and sectors.     

Intra‐industry Knowledge Spillovers from Foreign Direct Investment in Research and Development: Evidence from China's “Silicon Valley”

This study examines a specific channel of technology diffusion from multinational enterprises to domestic firms in less developed regions: research and development (R&D) activities of multinational enterprises in the host country. Using firm‐level panel data from a Chinese science park, known as China's “Silicon Valley,” we find that the R&D stock of foreign‐owned firms has a positive effect on the productivity of domestic firms in the same industry, while the capital stock of foreign firms has no such effect. These results suggest that foreign firms' knowledge spills over within industries through their R&D activities, but not through their production activities. In addition, we find no evidence of spillovers from domestic firms or firms from Hong Kong, Macao, or Taiwan, suggesting that the size of knowledge spillovers is larger when the technology gap between source and recipient firms is larger.     

PRC Outward Investment in the USA and Europe: A Model of R&D Acquisition

In this paper, I present a theoretical framework designed to explain People's Republic of China (PRC) outward foeign direct investment in the USA and Europe, in search of research and development (R&D) acquisition modeled as positive “spillover effects” in a two‐country model with firms distinguished by their ability to innovate. The motivation for this paper is the growing PRC merger and acquisition activity in Europe and the USA. The fact that the PRC, despite its many successful internal reforms, cannot induce innovation activity designed to alter its external sector from one that is based on cheap labor to one that is based on innovation‐rich products, has forced it to use its extensive reserve holdings to acquire the necessary R&D via merger and acquisition. These acquisitions will allow the PRC to alter their domestic and export product mix and thus avoid the middle‐income trap.     

ANTIDUMPING,INTRA‐INDUSTRY TRADE,AND QUALITY REVERSALS

We examine an export game where two (home and foreign) firms produce vertically differentiated products. The foreign firm is more R&D efficient and is based in a larger and richer market. The unique (risk‐dominant) Nash equilibrium exhibits intra‐industry trade, and the foreign producer manufactures a higher‐quality product. When transport costs are low, unilateral dumping by the foreign firm arises; otherwise, reciprocal dumping occurs. For some parameters, a domestic antidumping policy leads to a quality reversal in the international market whereby the home firm becomes the quality leader. This policy is desirable for the implementing country, though world welfare decreases.     

Multinational enterprises and innovation: firm level evidence on spillover via R&D collaboration

This paper estimates the knowledge spillovers to multinational enterprises (MNEs) in Sweden via domestic and foreign R&;D collaboration. Applying an augmented generalized method of moments-estimator that accounts for selectivity and simultaneity bias on data from 1,249 MNEs, our research has resulted in five distinct conclusions. First, we find that the knowledge spillovers via R&;D collaboration typically take place as a network phenomenon rather than a process between the local firm and a single innovation partner. Second, successful collaboration is conditional on the presence of foreign innovation partners in the network. Third, output is found to be an increasing function of R&;D-collaboration only among non-export oriented firms. Fourth, foreign MNEs, selling mainly to local and regional markets in Sweden, benefit more from R&;D collaboration than do other firms. Overall, the results show that demand-driven motives that require entrepreneurial knowledge to adapt products to local consumers and markets are more important for successful R&;D-collaboration than supply-driven motives.     

WHO GAINS FROM WHOM? SPILLOVERS,COMPETITION AND TECHNOLOGY SOURCING IN THE FOREIGN‐OWNED SECTOR OF UK MANUFACTURING

There is a growing literature explaining foreign direct investment flows in terms of ‘technology sourcing’, whereby multinational firms invest in certain locations not to exploit their firm‐specific assets in the host environment, but to access technology that is generated by host country firms. However, it is far from clear whether the literature has found significant evidence of such activity beyond a few isolated examples. This paper extends this work by allowing for the possibility of multinational enterprises (MNEs) sourcing technology not only from host country firms but also from each other within a host economy. The paper demonstrates that MNEs in the UK do indeed appropriate spillovers both from indigenous firms and from other foreign investors, but that there are also significant competition effects that act to reduce productivity in certain industries. The paper also explores which countries' affiliates gain most from technology sourcing in the UK, and which generate the greatest spillovers within the foreign‐owned sector.     

On the Relationship Between Innovation and Product Market Competition

This paper considers a theoretical model where firms reduce their initial unit costs by spending on R&D activities in a collusive market and where firms are able to coordinate on distinct output levels other than that of the unrestricted joint profit maximization outcome. We show that, in our model, the degree of collusion (captured by the discount factor) reduces the incentive to innovate when innovation is made non‐cooperatively. The reason is that non‐cooperative R&D introduces a negative externality where firms overinvest beyond the effort required to minimize the cost in order to extract profits from the rival firm, and a reduction in product competition helps internalize the externality. In a research joint venture the absence of R&D rivalry leads to contrary results. The main implication is that the validity of the Schumpeterian hypotheses depends on the extent of cooperation at the R&D stage.     

Multinationals,R&D and Endogenous Productivity Asymmetries

We analyze the influence of endogenous productivity asymmetries between firms, in terms of competitiveness and size, on multinational activity. In the model, productivity depends on cost-reducing R&D (research and development). We show that when firms differ on commitment power in R&D, the R&D leader, independently of being a multinational or a domestic firm, tends to invest more in R&D than the R&D follower. Because of these productivity advantages, the R&D leader can more easily become multinational. Therefore, in addition to the proximity-concentration trade-off, we identify another FDI (foreign direct investment) determinant: technological competition.     

标准化与企业的R&D投入倾向：基于中国工业企业数据的经验研究*

本文以工业企业的微观数据为基础，检验了标准化对企业R&D投入倾向的影响。理论上，标准化既可能促进也可能制约创新。而本文的研究发现，我国的标准化总体上显著提高了企业的R&D强度。进一步的研究表明，相较于竞争对手的标准制定活动，企业自身参与标准制定对R&D的激励效果更大，并且这种影响在大企业和非国有企业中更显著。此外，本文还发现，标准制定企业之间虽然相互施加了创新约束效应，但这种影响在统计上并不显著。     

Trade policy mix: IPR protection and R&D subsidies

Abstract .  This paper analyses strategic R&D policy under circumstances where intellectual property rights protection resulting from firms' R&D investment is not perfect. By examining policy choices wherein a government chooses both R&D subsidies and IPR protection levels simultaneously, we show that it is optimal for a government to adopt sufficiently weak IPR protection and to subsidize R&D investments of domestic firms. Inducing R&D investment of foreign rival firms will increase the profits of domestic firms.     

Going Multinational: What are the Effects on Home‐Market Performance?

Abstract. This paper compares the home‐market performance of German multinational enterprises (MNEs) and national firms, both before and after switching from national to multinational activities. Regarding the former case, our results show that future multinationals outperform domestic firms. When assessing the ex post performance of multinationals, selectivity issues must be taken into account. Applying an endogenous treatment model, it turns out that after switching, both productivity and wage growth are higher at newly founded MNEs. While capital intensities increase compared with those of national firms, employment growth rates are negatively related to switching, suggesting that home and foreign employment are substitutes.     

Domestic R&D and offshoring: does offshoring reduce knowledge production?

An important question in industrialized countries is whether offshoring activities reduce the probability of performing own research and development (R&D) or whether the R&D intensity falls in firms that already have R&D activities. This question is addressed using a unique data set that combines survey and register data. No evidence is found for a lower probability of own R&D after offshoring takes place compared to before. Moreover, offshoring does not lead to lower R&D intensity in general. However, firms that offshore R&D activity have larger R&D intensity after offshoring has taken place, which suggests that R&D performed at home is complementary to foreign R&D.     

Foreign and domestic R&D investment

A considerable share of R&D investment is due to multinational firms that simultaneously operate R&D bases at home and abroad. We develop a simple model of foreign and domestic R&D investment and test the model's predictions on a sample of 146 Japanese multinational firms’ R&D investments in Japan and the United States in 1996. The empirical results confirm that the foreign to domestic R&D ratio depends on relative technological opportunities and relative demand conditions, with foreign research expenditures responding to technological opportunity and foreign development expenditures responding to demand.