Journal of Industry, Competition and Trade

, Volume 18, Issue 3, pp 349–371 | Cite as

Intangibles Trade and MNEs: Supply-Chain Trade in R&D Services and Innovative Subsidiaries

  • Francisco MorisEmail author


This paper contributes to the literature on vertical specialization in R&D (or ‘R&D fragmentation’) and trade in intermediate services by examining the role of multinational enterprises (MNE) activities associated with bilateral foreign direct investment (FDI). Prior work in production networks (or global value chains [GVCs]) and R&D fragmentation suggests a complementarity relationship between FDI in R&D and technological knowledge flows. The paper examines this proposition empirically for R&D services trade by extending the gravity framework of supply-chain trade for intermediate services with bilateral MNE operations as economic mass variables. The results are partially consistent with the hypothesized complementarity. The econometric strategy accounts for zero trade observations. The latter addresses possible selection and consistency issues of traditional gravity trade specifications, and allows exploring extensive vs. intensive margin of trade. Understanding the role of MNEs in these transactions may be useful for policies aimed at increasing participation and upgrading in MNE-driven GVCs.


Trade in intermediate services R&D fragmentation Gravity model Global value chains Multinational enterprises Knowledge flows 

JEL Classification

F14 Empirical Studies of Trade F23 Multinational Firms • International Business O33 Technological Change - Diffusion Processes 



Thanks to Prof. Kaye Husbands Fealing, Georgia Institute of Technology USA, Prof. Kathryn E. Newcomer and Prof. Joseph J. Cordes (George Washington University) and to Dr. Carol Robbins (National Science Foundation) for comments on several versions of this paper. I also want to thank participants at the 2015 Meeting of the Academy of International Business in Bengaluru, India and the 2015 International Knowledge Sourcing Workshop, University of Catania, Italy. None of them are responsible for any errors in this paper. Views expressed are those of the author and do not necessarily reflect those of the National Science Foundation or other organizations.


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© This is a U.S. government work and its text is not subject to copyright protection in the United States; however, its text may be subject to foreign copyright protection 2017

Authors and Affiliations

  1. 1.George Washington University & National Science FoundationWashingtonUSA

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