Foreign and domestic R&D investment

A considerable share of r&d investment is due to multinational firms that simultaneously operate r&d bases at home and abroad. We develop a simple model of foreign and domestic r&d investment and test the model's predictions on a sample of 146 japanese multinational firms’ r&d investments in japan and the united states in 1996. The empirical results confirm that the foreign to domestic r&d ratio depends on relative technological opportunities and relative demand conditions, with foreign research expenditures responding to technological opportunity and foreign development expenditures responding to demand.