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1、Impact of OFDI on Domestic R&D Activity：Evidence from Taiwans Multinational Enterprises in low-wage countriesCourse Name:International business and tradeApplicant:汪鑫强Student ID:156001337Class:International business and tradeJune 12,2016Ningbo UniversityContentsAbstract.11. The Introduction of Taiwan
2、.22. Literature Review.23. Theoretical Analysis .34. Conclusion .4References.41AbstractThis paper theoretically and empirically investigates the home-country effects of a firms outward foreign direct investment (OFDI) activity, specifically OFDI motivated by lower labor costs in the host country. A
3、two-country imperfect competition model is developed, and the interaction between a firms R&D spending and its OFDI is examined. Panel data on Taiwanese manufacturing firms from 19922005 are applied to test the validity of the theoretical results. The propensity score matching method is used to cons
4、truct a comparison group without selection bias.Our theoretical evidence reveals that a Taiwanese firms OFDI is positively related to its domestic R&D spending, particularly in R&D-intensive industries.Keywords: R&D, outward foreign direct investment21. The Introduction of TaiwanTaiwans remarkable e
5、conomic growth since the 1950s is regarded as one of East Asias economic miracles.Its success can be attributed to policies designed to promote exports and inward foreign direct investment(FDI).Because Taiwans capital outflows were strictly regulated until the late 1980s,it had been a net capital-im
6、porting country for several decades.However,following tremendous trade surpluses and rapidly accumulated foreign exchange reserves beginning in the early 1980s,Taiwan started to liberalize its exchange rate policy and outward foreign direct investment(OFDI)policy in the mid-1980s.Since then,the cons
7、iderable appreciation of Taiwans currency and increasing labor costs have encouraged many Taiwanese firms in traditional industries to migrate to low-wage developing countries.Taiwan is now one of the largest OFDI investors in the world,particularly in mainland China.2. Literature ReviewBecause the
8、decision to engage in FDI is typically voluntary,it is reasonable to expect that OFDI benefits MNC.However,it is not clear whether OFDI is also beneficial to the home country of the MNC. Earlier studies focus on whether production abroad complements or substitutes for exports by the parent company o
9、r by other firms in the home country. In those studies, exports are defined as synonymous with domestic production, investment or employment. Empirical results from case studies in the USA, Sweden and Japan mostly reveal a small but predominately positive relationship between OFDI and exports in the
10、 home country.3 The findings regarding the impact of OFDI on employment are mixed.For instance, Lipsey et al. (2000) find that OFDI by Japanese and Swedish MNC 3tends to have a positive effect on domestic employment, while OFDI by MNC in the USA tends to have a negative effect.Regarding the effect o
11、f OFDI on home-country R&D, earlier literature (such as Singh (1977) and Thirlwall (1982) suggests that a firms OFDI may replace its domestic investment, including its R&D spending. Many recent studies, however, indicate that outward investment might be beneficial to the technological advancement of
12、 industries in the home country. For instance, Cohen and Klepper (1996a,b) demonstrate that a firm that shifts part of its production activities abroad may increase its total sales due to lower labor costs or market expansion induced by its OFDI. The greater the sales are, the greater the output ove
13、r which it can average the costs of R&D, leading to higher returns from R&D. Cuervo-Cazurra and Un (2007) reveal that a firm may encounter more diverse consumers and increased global competition after engaging in OFDI. Increased competition will shorten product life cycles and induce firms to engage
14、 in R&D for techno-logical advances. Diverse consumer preferences regarding quality and price might also stimulate firms R&D. In addition, MNC have more opportunities than purely national firms to learn from a variety of market and cultural perspectives, and this effect is amplified if the firms inv
15、est in R&D-intensive foreign countries (van Pottelsberghe de la Potterie and Lichtenberg, 2001). MNC also have access to a variety of diverse resources to invest in innovation. As a result, OFDI motivates firms to invest in R&D to build and maintain innovation (Hitt et al., 1997).3. Theoretical AnalysisFollo
