Global Innovative R&D Offshoring with Heterogeneous Labor: The Role of IPR‐Protection on Technology Transfer and the Brain Drain Effect

Using a North–South framework, this study proposes a theoretical general equilibrium model with multiple Northern firms offshoring innovative R&D to the South. Northern firms vary in their ability to manage Southern researchers, and Southern researchers vary in quality. Southern researchers of higher quality are more productive but also more likely to leave the firm and start a competing firm through imitation of the product. A strengthening of Southern IPR‐protection increases offshoring, global welfare, and innovation while eliminating employment opportunities for skilled Southern researchers. Therefore, stronger Southern IPR‐protection has the potential to contribute to the emigration of highly qualified researchers. The model then predicts the effects of changes to the Northern country as a result of this increased emigration. Increases in Northern technology increase offshoring and innovation while decreasing the amount of technology transferred. The effect of an increase in Northern researcher quality depends on the degree of the increase in productivity as a result of the higher quality workers.