Talent, Geography, and Offshore R&D
AbstractI model and quantify the impact of a new dimension of global integration: offshore R&D.
In the model, firms match with heterogeneous researchers to develop new product blueprints,
and then engage in offshore production and exporting. Cross-country differences in the distributions of firm managerial efficiency and researcher talent generate a “talent-acquisition” motive for offshore R&D, while the frictions impeding offshore production and trade lead to a “market-access” motive. I find empirical support for both motives using firm-level patenting data. I find additional evidence for these motives via counterfactuals using the calibrated model: international differences in endowment distributions and the market access motive collectively account for 90% of the average observed level of offshore R&D. Offshore R&D increases countries’ gains from global integration by a factor of 1.2 on average, with much larger increases for developing than for developed countries. Incorporating offshore R&D also has important implications for understanding the welfare impact of traditional forms of global integration, namely trade and offshore production.