Research and Development Performed Abroad by U. S. Manufacturing Multinationals

This study develops and empirically tests a ‘scenario’ describing the evolution of a typical American multinational manufacturing corporation's (AMMC's) foreign research and development (R & D) activity. It finds that international differences in R & D factor costs probably have very little effect on R & D location decisions. The critical variables appear instead to be less traditional things like the time elapsed since the AMMC first engaged in foreign production. That such variables were discovered and emphasized in the study is a result of the ‘satisficing’ approach adopted in its ‘scenario’. In vindicating that approach, the paper's findings also show the need for economic theorizing to take explicit account of the fact that information costs something to obtain and to use.