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Multinationals, R&D and Endogenous Productivity Asymmetries

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  • Armando J. Garcia Pires

Abstract

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.

Suggested Citation

  • Armando J. Garcia Pires, 2015. "Multinationals, R&D and Endogenous Productivity Asymmetries," International Economic Journal, Taylor & Francis Journals, vol. 29(1), pages 95-119, March.
    • Handle: RePEc:taf:intecj:v:29:y:2015:i:1:p:95-119
    DOI: 10.1080/10168737.2014.962560
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