Intra-firm technology transfer and R&D in foreign affiliates: Substitutes or complements? Evidence from Japanese multinational firms

R&d in foreign affiliates and technology transferred from their parent firms are important potential drivers of productivity in host countries. In this paper we examine the simultaneous impact of local r&d and intra-firm international technology transfer on productivity growth in foreign affiliates. We estimate a dynamic productivity model on a large sample of japanese manufacturing affiliates worldwide in 1996–1997 and 1999–2000. We find that both affiliate r&d and intra-firm technology transfer contribute to productivity growth, while technology transfer exhibits decreasing marginal returns. The two sources of technology are complements: use of one source of technology increases the marginal impact of the other. J. Japanese int. Economies22 (3) (2008) 310–319.