R&D offshoring and home industry productivity

Abstract

Offshoring research and development (R&D) commonly invokes concerns regarding the loss of high value jobs and a hollowing out of technological capabilities, but it can also benefit domestic firms by enabling them to tap into the global technological frontier. We study the effect of R&D offshoring on industrial productivity in the home country using industry-level data for 18 OECD countries over a 26-year period. Simultaneity between productivity and R&D offshoring is addressed by using foreign tax policy as an instrument for offshored R&D. We show that R&D offshoring contributes positively to productivity in the home country, irrespective of the host country destination.

Innovation offshoring and reshoring with fully endogenous growth

“…As a result, the increased dispersion of production and innovation away from the asset‐wealthy country leads to lower innovation costs and potentially a higher rate of productivity growth. Thus, through a study of the effects of greater economic integration, we find that by reducing the geographic concentration of R&D activity, innovation offshoring promotes long‐run productivity growth, corresponding with empirical evidence that R&D offshoring results in higher‐productivity levels (de Rassenfosse & Thomson, 2019) and faster rates of labor productivity growth (Castellani & Pieri, 2013).…”

“…At the aggregate level, D'Agostino et al (2013) show that OECD regions with firms that offshore innovation to emerging economies have more patent applications, and Castellani and Pieri (2013) report that European regions with a greater number of outward oriented R&D investment projects exhibit higher rates of labor productivity growth. More recently, matching patent‐based indicators of R&D offshoring with industry‐level productivity measures for a group of OECD countries, de Rassenfosse and Thomson (2019) find that R&D offshoring results in higher productivity for the home country, regardless of the destination country. Although the firm‐level and aggregate‐level empirical evidence suggests a positive relationship between R&D offshoring and innovation‐based economic growth, to the best of our knowledge this relationship has not been formally modeled within an endogenous growth framework.…”

Sources of Knowledge Flow Between Developed and Developing Nations

“…Research and development (R&D) globalization is a defining feature of modern innovation systems and a major driver of productivity growth (Eaton and Kortum 1996;Thomson and de Rassenfosse 2019). Innovating firms set up R&D labs abroad or cooperate with foreign partners to tap into an ever more globally dispersed knowledge frontier and to reduce R&D costs (Harhoff et al 2014).…”