From Learning to Partnership: Multinational Research and Development Cooperation in Developing Countries

From Learning to Partnership: Multinational Research and Development Cooperation in Developing Countries

Author: 
Navaretti, Barba Giorgio
Place: 
Washington, D. C.
Publisher: 
World Bank Group
Date published: 
1999
Record type: 
Responsibility: 
Carraro, Carl, jt. author
Abstract: 

October 1996 Do multinationals cooperate in research and development with local firms in developing countries? This paper explores the theoretical underpinnings and provides new empirical evidence of R&D cooperation between firms with asymmetric endowments of knowledge. Barba Navaretti and Carraro analyze the determinants of interfirm agreements between industrial and developing countries for research and development (R&D) - that is, between firms with asymmetric endowments of knowledge. They develop a model in which a multinational has two options: (1) setting up a subsidiary and competing with a local firm in a duopoly, or (2) implementing an agreement and sharing monopoly profits. The two firms, if they choose the agreement, may also cooperate in R&D. The model shows that: ° The choice of cooperating in R&D is influenced by the intertemporal preferences of the developing country firm, the relative efficiency in R&D of the two firms, and the extent of knowledge spillovers. ° The choice of cooperating in R&D increases both the profitability and stability of the agreement, stability because it affects the long-term trust between the partners. The empirical analysis is based on a data set of international arm's length agreements, part of which involve joint R&D. Testing the two-choice model supports some of the key theoretical results and assumptions. R&D agreements are particularly likely to emerge when firms are operating in knowledge-intensive industries (where nontangible assets, like knowledge, are large relative to tangible assets), when the partners have a nonhierarchical contractual relationship (they all contribute to the R&D effort), and when technological asymmetries between home and host countries (as proxies of knowledge endowments of the contracting firms) exist but are not too great. This paper - a product of the International Trade Division,...

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CITATION: Navaretti, Barba Giorgio. From Learning to Partnership: Multinational Research and Development Cooperation in Developing Countries . Washington, D. C. : World Bank Group , 1999. - Available at: http://library.au.int/learning-partnership-multinational-research-and-development-cooperation-developing-countries