Bring Your Laboratory to My Country: What Is The Role of Foreign Direct Investment?

Abstract

This article investigates the relationship between multinational enterprises’ (MNEs) plans for foreign direct investment (FDI) and their research and development (R&D) offshoring. To examine this issue, we focus our analysis on FDI types that are crucial to MNEs’ resource allocation. This is illustrated from the perspectives of intra-firm trade and market targeting. By employing Taiwanese manufacturing survey data and the generalized method of moments approach, we found that MNEs’ FDI intensity has significant positive effects on MNEs’ decisions to engage in R&D offshoring. Subsidiaries’ sales to local markets reveal that the relationship between the R&D offshoring and horizontal FDI is strong and positive in Taiwanese MNEs.