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The Impact of Innovation in the Multinational Firm

Author

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  • Eduardo Morales

    (Princeton University)

  • Kamran Bilir

    (University of Wisconsin - Madison)

Abstract

What is the private return to innovation? When firms operate production sites in multiple countries, improvements developed at one site may be shared across others for efficiency gain. We develop a dynamic model that explicitly accounts for such transfer within the firm, and apply it to measure innovation returns for a comprehensive panel of U.S. multinationals during 1989--2009. We find that the data, which include detailed measures of affiliate production and innovation, are consistent with innovation generating returns at firm locations beyond the innovating site. Accounting for cross-plant effects of innovation, our estimates indicate the average firm realizes between 10 and 30 percent of the return to its U.S. parent R&D abroad, suggesting single-plant estimates may understate firms' gain from innovation.

Suggested Citation

  • Eduardo Morales & Kamran Bilir, 2015. "The Impact of Innovation in the Multinational Firm," 2015 Meeting Papers 238, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:238
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    References listed on IDEAS

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