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The IT Revolution and the Globalization of R&D

Lee G. Branstetter, Britta Glennon, J. Bradford Jensen

Chapter in NBER book Innovation Policy and the Economy, Volume 19 (2019), Josh Lerner and Scott Stern, editors (p. 1 - 37)
Conference held April 17, 2018
Published in November 2018 by University of Chicago Press
© 2019 by the National Bureau of Economic Research
in NBER Book Series Innovation Policy and the Economy

Since the 1990s, R&D has not only become less geographically concentrated, but there has been especially fast growth in less developed emerging markets like China and India. One of the distinguishing features of the R&D globalization phenomenon is its concentration within the software/IT domain. The increase in foreign R&D on the firm side has been largely concentrated within software and IT-intensive multinationals. This concentration is mirrored on the country side; new R&D destinations such as India, China, and Israel look very different in the types of innovative activity being done there than older R&D destinations such as Germany, France, the UK, Canada, and Japan. In this paper we will document three important phenomena: (1) the globalization of R&D by US MNCs, (2) the growing importance of software and IT to firm innovation, and (3) the rise of new R&D hubs, and the differences in the type of activity done there. We argue that the shortage in software/IT-related human capital resulting from the large IT- and software-biased shift in innovation drove US MNCs abroad, and particularly drove them abroad to “new hubs” with large quantities of STEM workers who possessed IT and software skills. Our findings support the view that the globalization of US multinational R&D has reinforced the technological leadership of US-based firms in the information technology domain and that multinationals’ ability to access an increasingly global talent base could support a high rate of innovation even in the presence of the rising (human) resource cost of frontier R&D.

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Document Object Identifier (DOI): https://doi.org/10.1086/699931

This chapter first appeared as NBER working paper w24707, The IT Revolution and the Globalization of R&D, Lee G. Branstetter, Britta M. Glennon, J. Bradford Jensen
 
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