The Location of Multinational Firms’ R&D Activities Abroad: Host Country University Research, University–Industry Collaboration, and R&D Heterogeneity

We examine the determinants of multinational firms’ propensity to conduct R&D activities in host countries, with specific attention to the influence of host countries’ university research. We consider heterogeneous locational drivers related to the type of R&D activity: basic research, applied research, development for local markets, and development for global markets. Drawing on official survey data on R&D activities by 498 Japanese multinational firms in 24 host countries and estimating two-stage models, we find that the likelihood that firms conduct R&D in a host country is generally increasing in the strength of university research. Conditional on a firm’s R&D presence, university research strength is associated with a greater propensity to conduct (basic) research activities rather than (local) development, while the intensity of host country university–industry collaboration is most strongly associated with applied research. Host country experience and the depth of the firm’s manufacturing presence are also associated higher propensities to engage in research.