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International Trade in Research and Development Services and the Activity of MNC Subsidiaries Open Access

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International technology diffusion reflects global R&D; production and collaboration that increasingly accompany other forms of international activity such as trade and foreign direct investment. This thesis studies country-level market flows of disembodied technology or intangibles trade. The main conceptual premise is that operations of MNC subsidiaries have a substantial effect on these market-based flows, consistent with public goods aspects of industrial knowledge and with theories on MNC R&D; strategies. Extensive previous country-level work relating FDI and technology flows focuses largely on knowledge spillovers (benefits from involuntary, uncompensated knowledge flows). Further, this study considers simultaneously two types of MNC subsidiaries (foreign owned subsidiaries and overseas subsidiaries of domestic MNCs) to acknowledge the likely role of two-way FDI (measured by MNC activities) in intangibles trade. In turn, the influence of these subsidiary groupings on intangibles trade reflects varied motives of the underlying R&D; investments. The predicted effects of MNC operations on intangibles trade result in hypotheses that are tested with published aggregate statistics from the U.S. balance of payments on total U.S. exports and imports in R&D; services as the dependent variables. Theoretically, the thesis introduces the concept of reverse knowledge transfer from international business research to the study of bilateral intangibles trade. More generally, the thesis contributes to the literature by integrating macro and micro perspectives useful to understand the direction and nature of disembodied technology flows. In particular, the conceptual approach is consistent with macro trade models (two-way trade and two-way FDI from new trade theory), international business research, knowledge-based and transaction costs theories of MNCs (internalization of knowledge production and transfer), and innovation theory (knowledge seeking/exploiting). Consistent with these theoretical considerations, the empirical implementation considers panel countries as both exporters/importers of intangibles and host/home countries of R&D-performing; MNC subsidiaries. In turn, estimated equations use panel econometrics to relate observed heterogeneity in the geographic structure of bilateral trade with the geographic distribution of MNC operations for the two types or groupings of MNC subsidiaries. The main conceptual premise of this study was supported by the empirical findings. In the aggregate, U.S. MNCs and foreign MNCs with U.S.-located subsidiaries appear to engage in knowledge seeking R&D; investments that influence transactions captured in balance of payment statistics. At the same time, the hypotheses regarding the effect of value added operations were not sustained statistically, failing to support knowledge exploiting as conceptualized here. International transactions in intangibles in the form of services trade have yet to be integrated in the mainstream S&T; policy literature. The analysis of aggregate R&D; services trade pursued in this study may complement research on industrial knowledge flows based on other S&T; indicators (or levels of aggregation) thus potentially allowing monitoring and analysis of international technology diffusion earlier in the innovation cycle (e.g., before or apart from patenting), and suggests the potential of non-spillover flows as targets of international S&T; policy tools, perhaps in conjunction with trade and investment policy frameworks. The study also discusses the need for enhanced and integrated domestic and international statistics on R&D; and related intangibles to support future research and the design or modification of policy tools to monitor and facilitate cross-border flows of industrial knowledge.

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