Japanese Corporate Strategies on Location Choices of R&d Activities in China: Identifying the Role of Knowledge Spillovers

The objective of this research is to analyze the geographical distribution of the research and development (R&D) collaboration of Japanese multinational enterprises (MNEs) in China. We analyze location strategies of overseas R&D activities on a regional instead of a national level. We first discuss the linkage of foreign direct investment (FDI) and ensue knowledge spillovers from MNEs to a host country, and further analyze how the knowledge spillovers influence MNEs in making their decisions on location choices in China. Using conditional logit estimation from U.S. patent data, we find that Japanese MNEs are in proximity to the R&D-intensive locations and to the clustering of Japanese MNEs, but have a tendency to keep a distance from R&D-competitive locations that would be endangered by outward knowledge spillovers. In addition, small and medium MNEs are influenced more by location factors, such as R&D and FDI, than large MNEs. So are capital-intensive MNEs than non-capital-intensive MNEs. 1. INTRODUCTION Japan is one of the top economies in the world with high outward foreign direct investment (FDI), while China is one of the large economies with high inward FDI. China obtained the inward FDI up to $69.5 billion