R&D Subsidies, Multinational Firm Ownership, and Exporting

Abstract

We examine the question of whether a country benefits by subsidizing the R&D of foreign owned monopoly firms. We allow for any proportion of foreign ownership; and, R&D improves the product so that customers directly benefit. The policy implications are: (1) the optimal subsidy increases with the percentage of home ownership; (2) the subsidy amount increases with increased exports, but the subsidy rate decreases; and (3) some variables associated with decreasing home sales are also associated with a higher probability of a positive subsidy.

Keywords: Research and Development Expenditure, Subsidy, Quality Improvement, Multinationals, Exporting

JEL Classification: O38, F23, D42