Does R and D offshoring displace or strengthen knowledge production at home? Evidence from OECD countries

Introduction This chapter aims to investigate whether offshoring of R&D activity in fast-growing economies impacts on the knowledge creation of home investing countries. This research question goes back to the debate on whether these investments really strengthen home countries' knowledge production (Hemphill, 2005; Kotabe, 1990), or instead they hasten a possible hollowing out and /or a polarization of a home country's competences (Bardhan and Jaffee, 2005; Lieberman, 2004; Teece, 1987). Despite further research conducted on this issue (e.g., Egger et al., 2001; Falk and Wolfmayr, 2005; Feenstra and Hanson, 1999; Gersbach and Schmutzler, 2006; Hansson, 2005; Hsieh and Woo, 2005; Naghavi and Ottaviano, 2009), consensus on the net impact of offshoring on the home country is lacking and additional empirical evidence is needed. Available statistics clearly document an increasing degree of R&D internationalization by multinational firms as well as a recent change in the location and nature of their overseas activities (Belderbos and Sleuwagen, 2007; UNCTAD, 2005). Specifically, both UNCTAD and OECD data show that Singapore, India, China, Korea, and, to a lesser extent, Brazil are increasingly attracting R&D by multinationals. In particular, UNCTAD estimates that of the 1, 773 FDI projects involving R&D as a key business function during 2002–04, no fewer than 1, 095 went to Eastern Europe and Asia, with India and China the most important destination countries (UNCTAD, 2005: xxvi).