Determinants of location of overseas R&D activity of multinational enterprises: the case of US and Japanese corporations

Abstract

This paper analyzes the determinants of location of overseas R&D activity of US and Japanese multinational enterprises (MNEs) in a three-dimensional setting. Large domestic market, the abundance of low cost R&D manpower, and the scale of national technological effort favour the location of overseas R&D in a country. Tests covering sectoral composition support the proposition that a significant proportion of MNEs' R&D activity follows that of leaders in their own fields. Lack of adequate patent protection or restrictive trade regime does not affect the attractiveness of a country otherwise well-suited for R&D activity. Internationalization of R&D activity of Japanese MNEs is confined to relatively low technology-intensive industries compared to US MNEs.