The Effect of Outward Foreign Direct Investment on Domestic R&D Spending: A Panel-Data Analysis of Taiwanese Manufacturing Firms

This paper re-examines the impact of a firm’s outward foreign direct investemnt on its R&D spending in the home country with propensity score matching method. Employing firm-level panel data on Taiwan’s manufacturing firms covering 1987-2003, this paper first demonstrates that firms with firm-specific and ownership advantages are more likely to undertake overseas inverstment. Controlling for outward investment selection bias as well as possible R&D selection bias, this paper shows that Taiwanese manufacturing firms’ outward foreign direct investment activity are positively related to their domestic R&D spending, which is contrary to general beliefs.