Reverse Productivity Spillovers in the OECD: The Contrasting Roles of R&D and Capital

Abstract

This paper analyzes the relationship between research and development (R&D) and capital investment by domestic firms and the productivity of foreign affiliates of multinational enterprises in developed countries. We explain why "reverse spillovers" from domestic to foreign firms might differ when R&D and capital are considered as two separate channels. Using industry-level data for eight Organisation for Economic Co-operation and Development (OECD) economies (including the Czech Republic and Slovakia) in 2001-2007, we find robust evidence that R&D investment by local firms is positively associated with the productivity of affiliates of foreign firms. Our findings and theory add to the relatively scarce research on reverse spillovers and contribute to the literature on knowledge-seeking foreign direct investment (FDI).

Knowledge flows, strategic motives and innovation performance: Insights from Australian and New Zealand investment in Europe

“…Mudambi and Navarra (2004) address this issue by identifying four basic knowledge flows within MNEs: (a) flows from the subsidiary to the parent (knowledge transfer that helps HQ exploit local knowledge); (b) flows from the subsidiary to the location (spillovers – flows to local customer, suppliers, universities etc. ); (c) flows from the location to the subsidiary (reverse spillovers – subsidiary's learning and knowledge sourcing – Zámborský and Jacobs, 2016) and (d) flows from HQ or another subsidiary (subsidiary exploits home base knowledge advantage).…”