Analysis Chronicles Changes in U.S. Investment in R & D
The distribution of U.S. investment in research and development (R&D) across countries and industries has undergone a dramatic shift since the 1990s, with R&D becoming less concentrated geographically and growing rapidly in less developed markets such as China and India. The phenomenon of R&D globalization is also distinguished by its concentration in the domains of software and information technology (IT). In this context, a new analysis examines how changes in innovation within firms and a shortage of human capital in the United States in the fields of software and IT have driven U.S. multinational companies to establish and expand new innovation hubs abroad.
The analysis, by researchers at Carnegie Mellon University and Georgetown University, was published as a working paper by the National Bureau of Economic Research.
“Our findings support the view that the globalization of U.S. multinational R&D has reinforced the technological leadership of U.S.-based firms in the information technology domain,” notes Lee G. Branstetter, professor of economics and public policy at Carnegie Melon University’s Heinz College of Information Systems and Public Policy, who led the study. “And that multinationals’ ability to access a global talent base could support a high rate of innovation even in the presence of the rising human resource cost of frontier R&D.”
The analysis documents three important issues: the growing globalization of R&D, the increasing importance of software and IT to firms' innovation, and the rise of new R&D hubs and the differences in the types of activity done there. The researchers argue that these are not separate issues but are closely
Based on their analysis, the researchers conclude that the United States is experiencing constraints on the supply of human capital in the fields of software and IT, which limit the possibilities for U.S.-based multinational firms to be innovative. Global flows of investment, people, and ideas could help relax these constraints to some extent, they suggest, raising growth, productivity, and consumption possibilities worldwide. However, since the 1990s, the U.S. labor market has become more closed to immigration, which, in some cases, has spurred firms to shift some of their R&D to the places from which they had recruited engineers. Education policies could also expand the supply of IT and software workers in the United States, they suggest.
The authors also document a sharp rise in outbound foreign direct investment focused on R&D at a time when
“To the extent that the rapidly growing investments in global R&D networks are rational, they provide a new reason for worry that policymakers around the world are rejecting globalization,” according to Britta M. Glennon,
The study was funded by the National Science Foundation.
Summarized from a working paper by the National Bureau of Economic Research, The IT Revolution and the Globalization of R&D by Branstetter, LG (Carnegie Mellon University), Glennon, BM (Carnegie Mellon University), and Jensen, JB (Georgetown University). Copyright 2018. All rights reserved.