Does Foreign Direct Investment Transfer Technology Across Borders?

Previous studies have found that importing goods from R&D-intensive countries raises a country’s productivity. In this paper we investigate econometrically whether foreign direct investment (FDI) also transfers technology across borders. The data indicates that FDI transfers technology, but only in one direction: a country’s productivity is increased if it invests in R&D-intensive foreign countries--particularly in recent years--but not if foreign R&D-intensive countries invest in it. Other findings of the paper are: (1) the ratio of foreign-R&D benefits conveyed by outward FDI to foreign-R&D benefits conveyed by imports is higher for large countries than it is for small ones; (2) failure to account for international R&D spillovers leads to upwardly biased estimates of the output elasticity of the domestic R&D capital stock; and (3) there are much larger transfers of technology from the U.S. to Japan than there are from Japan to the U.S. JEL: 030, 047, O57 , C23, F23