THE DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN R&D: DIFFERENT INDUCEMENT EFFECTS OF PRIVATE AND PUBLIC R&D IN DEVELOPED AND DEVELOPING HOST COUNTRIES

In this paper, we identify the different determinants of the location of research and development (R&D) on foreign direct investment (FDI) in both developed and developing countries. In the case of host developed countries, we find that private R&D investment is positively associated with attracting R&D on FDI. In contrast, in the case of host developing countries, we find that private R&D investment is not significantly associated with attracting R&D FDI, but public R&D induces it. These findings imply that the objective of R&D FDI in developed economies is to advance multinational corporations’ (MNCs) technology further by targeting the local technology market. In contrast, the R&D FDI of MNCs in developing countries is attracted toward localities where the R&D infrastructure is better developed due to public R&D investment. MNCs in developing countries do not direct considerable attention to the R&D activities of the local private sector because their goal is to modify their own technology or products for the local product or export markets in the host countries. Therefore, although one obvious policy implication is the importance of conducting local R&D to attract foreign R&D, the more important factors are to stimulate private R&D further in the case of developed countries and to initiate public R&D first in the case of developing countries.