Job Market Paper

Innovative R&D Offshoring in North-South Trade: Theory and Evidence

This study proposes a general equilibrium model to describe innovative R&D location decisions by multinational firms. Using two countries, a developed North and a developing South, the model examines Northern firms employing researchers in the South in order to produce new varieties of a good. The Northern firms risk their product being imitated when offshoring research. Southern researchers may take in- formation learned while employed by the Northern firm and start their own competing firm. The model’s main predictions are supported empirically by a dataset constructed with US patent data. For high-tech industries, stronger IPR-protection in the South increases both industry-level and firm-level offshoring at a rate faster than low-tech industries. Southern import tariffs do not affect firm-level innovative R&D offshoring. 

Working Papers

 

Market Structure and R&D Outsourcing

This study proposes a simple model to describe innovative R&D location decisions by multinational firms. The model offers an explanation for the lack of R&D investment by multinational firms in developing regions. Using the threat of imitation, wage differences across regions, and economies of scope relating to R&D, I build a North-South model looking at a single firm’s choice of research location in a number of different competitive environments. Overall, the model predicts weak IPR-protection in developing countries does not necessarily explain the lack of southern research. In some situations, a weakening of IPR-protection can even induce southern research. Harsh competition resulting from information leaks coupled with weak IPR-protection can explain much of the lack of innovative research investment in the developing world. My model also predicts smaller firms that require less innovative research will locate their R&D in the North. Medium sized firms will locate in both countries while the largest firms will locate research in just the South. 

R&D Outsourcing with Heterogeneous Labor

I build a general equilibrium model examining an industry with multiple firms choosing research locations in a North-South model.  Firms can employ researchers from either or both country in order to invent a new variety of a good.  Southern researchers can take information gathered while working for a firm and apply it to emulating the new product.  Higher ability Southern researchers increase the probability of successfully creating a product.  These workers are also more likely to move to competing firms who attempt to create a similar product.  Using specific function forms for the probability of successful innovation and retention of the innovation, I show that multinationals can find it profitable to outsource some research tasks to developing country despite weak IPR-protection.