The New Global Invention Machine: A Look Inside the R&D Networks of U.S. Multinationals Lee Branstetter, Carnegie Mellon University and NBER Britta Glennon, University of Pennsylvania Brad Jensen, Georgetown University and NBER 1
Since 1990, foreign R&D has grown 5-fold 2
…with particularly striking increases in information and in professional, scientific, and technical services R&D Expenditures by US MNC Foreign Affiliates by Industry of Foreign Affiliate, Indexed (1999=100) 4000 Information 3500 3000 Professional, scientific, and 2500 technical services Wholesale trade 2000 1500 Manufacturing 1000 500 Other industries 0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 3
MNC foreign R&D used to be concentrated in a few advanced economies, but its geographic distribution has dramatically expanded 4
MNC foreign R&D used to be concentrated in a few advanced economies, but its geographic distribution has dramatically expanded 5
One driver is the growing importance of software and IT hardware in innovation IT- and software-biased shift in innovation Increased demand for software/IT- related human capital that was not fully met US MNCs do R&D abroad in “new hubs” that have large quantities of STEM workers 6
IT and software have become much more important in US innovation Growth in the Proportion of USPTO Patents that are Software or IT Hardware .6 .5 .4 .3 .2 .1 1980 1990 2000 2010 2020 Application Year 7 Source: USPTO
IT and software have become much more important in US innovation Growth in the Proportion of USPTO Patents that are Software or IT Hardware .6 .5 IT and software are also domains where geographic .4 disaggregation is easier .3 .2 .1 1980 1990 2000 2010 2020 Application Year 8 Source: USPTO
Demand for talent in these domains was partly addressed with imports of foreign talent… Growth in US college-educated workforce, 1993-2010 All workers IT Workers Foreign Workers Foreign IT Workers 330% 350% 300% 250% 185% 200% 150% 114% 100% 68% 50% 0% 9 Source: National Survey of College Graduates (NSCG) -1993, 2003 and 2010
…and partly addressed by accessing foreign talent abroad – especially when immigration restrictions were more constraining In 2004, the H-1B cap fell by ~75% 10 Source: Glennon (2019)
Specialization according to comparative advantage? R&D Performed by Affiliates in 2009, by Industry of Affiliate China Germany 12.81% 67.23% India Israel 18.49% Comp & Elect Prod Manuf Electrical Equip Manuf Finance & Insurance Information Mining Other industries Prof, Sci & Tech Svc Retail Trade Traditional Manuf Wholesale Trade Note: Traditional Manufacturing includes Chemical, Food, Machinery, Primary & Fabricated Metals, Transportation Equipment Source: BEA 11 Source: Bureau of Economic Analysis
Could R&D globalization be a way to reverse the global productivity slowdown? 12 Source: Byrne, Fernald, and Reinsdorf, 2016
Could R&D globalization be a way to reverse the global productivity slowdown? The “burden of knowledge” ◼ concept implies that the scale of investment in innovation matters 13 Source: Jones (2009)
Could R&D globalization be a way to reverse the global productivity slowdown? The “burden of knowledge” ◼ concept implies that the scale of investment in innovation matters Many of the “new” R&D hubs ◼ appear to have higher-than- typical R&D productivity within MNC networks 14
Takeaways US MNCs have developed an innovation system that spans the globe ◼ The need for IT/software human capital has driven some of the surge ◼ in and location choice of foreign R&D Evidence suggestive of a global division of labor, where activities are ◼ located in regions where production is most efficient Foreign talent could power an acceleration in the rate of productivity ◼ growth Deglobalization could inhibit the productivity benefits that R&D ◼ globalization could bring 15
THANK YOU 16
BACKUP SLIDES 17
R&D has always been much more highly concentrated in the home country than other activities of the firm Foreign Affiliate Activity as a Share of US MNC Global Activity in 1999 30% 25% 20% 15% 10% 5% 0% R&D Employees Sales 18
The US parent continues to be the core of US MNC innovative activity, but foreign activity is steadily becoming more important US MNC's Patenting at Home US MNC's R&D Expenditure at Home as a Share of Total Global US MNC Patents as a Share of Total Global R&D Expenditure .92 .86 .9 .84 .88 .82 .86 .8 .84 .78 .82 1990 1995 2000 2005 2010 2015 2000 2005 2010 2015 Year Application Year Source: Bureau of Economic Analysis Source: Bureau of Economic Analysis & USPTO Note: Foreign patents defined by having at least one foreign inventor on the patent 19
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