|Author Name||YAMASHITA Nobuaki (Royal Melbourne Institute of Technology (RMIT) / Keio University) / YAMAUCHI Isamu (Research Associate, RIETI)|
|Creation Date/NO.||September 2019 19-E-068|
|Research Project||Frontiers of Innovation Policy: Evidence from micro data|
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There has been a global shift in the distribution of manufacturing jobs and activities away from high-wage countries to low-wage countries for the past few decades. This paper examines a largely unexplored channel of the effects of offshore production on onshore (domestic) innovation performance. Controlling for the endogeneity, we find that increased offshore employment and R&D do not have positive impact on the domestic innovation measured by the number of patent applications and the number of forward citations on average. However, offshore R&D increases the quality of domestic innovation when the firms expand R&D function to the developed countries while it has a negative effect in the developing countries. We also find a synergistic effect between production and R&D activities. Therefore, separating the two activities can decrease the efficiency of resource allocation on the domestic innovation.