Essays on Multinational Firms, R&D Spillovers and Absorptive Capacity Effects

This thesis is a collection of theoretical and empirical essays on the relationship between R&D (research and development) spillovers and the activities of multinational firms. It raises questions that relate to the capacity of multinational firms to absorb knowledge and technology through spillovers. A core question is whether such spillovers make it more attractive for firms to invest abroad.
The first part of the thesis surveys the earlier literature and the empirical findings on whether firms go multinational in order to gain from localized R&D spillovers. It is shown that studies based on firm level data tend to reject the existence of this motive, but not if the studies are based on the patenting behavior of firms. Studies using industry and country data are more supportive to this motive.
Next, the thesis contains two game theoretic models that explain under what conditions firms will find it optimal to establish local production instead of servicing a foreign market through exports. Both essays focus on the impact of incorporating the issue of absorptive capacity in models with strategic behavior. In contrast to the earlier literature, the first theoretical essay shows that firms do not necessarily increase their R&D spending when own R&D enables learning form others. Also, it is shown that an environment where own R&D spending strongly improves the ability to absorb external knowledge, is not necessarily good for welfare. The second theoretical essay shows that multinationals will be skeptical to investing in a new country if these absorptive capacity effects of own R&D are large. This is so, since local firms will be able to reap the benefits from the multinational’s R&D activities.
The two last essays are econometric exercises based on Norwegian data. The first econometric essay tries to identify whether foreign owners in the Norwegian manufacturing sectors are attracted by local R&D activities. The study is based on firm level data and does not indicate that foreign ownership is motivated by local R&D and spillovers. The second econometric study maps R&D spillovers to business sectors in Norway. The spillovers may arrive through the use of domestic intermediates, imports or foreign ownership. We find that the two first channels are highly important, while the third has no significant impact on business productivity. The study also shows that the absorptive capacity of Norwegian business sectors is an important requirement for spillovers through imports, but not for spillovers through domestic intermediates.