R And D, Foreign Direct Investment And Technology Sourcing?

The U.S. experienced a surge in foreign direct investment (FDI) during the 1980s. To date, we do not fully understand what the research and development (R and D) effects of FDI are. FDI can affect the host country\u27s R and D activities in at least two ways. First, if domestic firms perceive foreign entrants as serious threats to their domestic market share, they will change their R and D policies hence industry-wide R and D intensity also changes. Second, the increase in R and D intensity may be attributed to foreign firms\u27 R and D activities to acclimatize to U.S. conditions. Using a panel of 4-digit SIC industries from 1981-91, there is some evidence that the latter scenario may be a possible explanation for the observed changes in industry-wide R and D intensity