Innovation in the Global Firm

L. Kamran Bilir, Eduardo Morales

NBER Working Paper No. 22160
Issued in April 2016, Revised in November 2016
NBER Program(s):ITI, PR

How global are the gains from innovation? When firms operate production plants in multiple countries, technological improvements developed in one location may be shared with foreign sites for efficiency gain. We develop a model that accounts for such transfer, and apply it to measure private returns to R&D investment for a panel of U.S. multinationals during 1989{2008. Our estimates indicate that innovation increases performance at firm locations beyond the innovating site: the average U.S. multinational firm realizes abroad over a quarter of the return to its U.S. R&D investment, suggesting estimates based only on domestic operations understate multinationals' gain from innovation. We also find that multinationals' U.S. R&D significantly increases aggregate value added in foreign countries that host their affiliates, revealing a spatial disconnect between the costs and potential gains of policies that encourage firms' U.S. innovation.

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Document Object Identifier (DOI): 10.3386/w22160

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