International Economic Seminar Series: Multinational Production & Innovation with Jin Liu, Princeton

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At the most recent International Economics seminar, Jin Liu, an IES Postdoctoral Fellow at Princeton University, presented “Multinational Production and Innovation in Tandem.” Jin studies how multinational firms decide on the colocation of production and innovation activities. She utilizes administrative data from the U.S. Census Bureau, including the Business Research and Development and Innovation Survey (BRDIS), which captures firm-level R&D expenditures in foreign countries, to analyze firms’ offshoring behavior. The data show that multinational firms offshore more innovation to a foreign country if they have more production there and if they produce more in other countries within the same region. Jin finds evidence that these colocation decisions are motivated by synergies between production and innovation. When the U.S. increases tariffs on a foreign country, it causes firms to reduce both offshored production and innovation within the country and surrounding region.

To further explore these dynamics, Jin models firms’ offshoring location decisions while taking into account cross-country interdependencies. Results indicate that offshoring both production and R&D to a foreign country yields a 0.06% to 0.2% greater increase in firm productivity compared to offshoring R&D alone. Simulations of bilateral trade policies, such as increased U.S. tariffs on Chinese goods, demonstrate that while such policies may effectively reshore production to the U.S., the reshoring of innovation is modest, as some innovation shifts to third-party countries. The study highlights the importance of considering both colocation synergies and cross-country interdependencies in policy design.