R&D, Integration, and Foreign Ownership1

This study empirically investigates the effect of foreign ownership on research and development (R&D) investment based on firm-level panel dataset for the period 2000-2008 taken from the Basic Survey of Japanese Business Structure and Activities. The results reveal the following. First, the “integration effect” on R&D is negative for domestic or foreign majority ownership. Second, although the “foreign ownership effect ” controlling for integration effect is insignificant, it becomes positive only when the parent firm is located in a non-G7 country. Third, the negative integration effect is stronger for vertical integration than it is for horizontal integration. These findings have an important implication in that the globalization and integration of firms not only may affect the pattern of production process and the global supply chain, but also have important influence on the level of domestic R&D activities