Abstract
In recent years, Taiwan’s industries put more emphasis on research and innovation. On the other hand, Taiwanese firms take advantage of China’s huge materials and human resources to invest in mainland China. The production model that simultaneously executed R&D and investment in China has become the development trend of Taiwanese manufacturers. With this kind of production trends, it is essential to understand how R&D and FDI in China affect operation of the parent firms. This paper addresses this issue by empirically analyzing firms’ investment behavior, the relationship between R&D and FDI in China, and how these two activities affect firms’ productivity and export value. Based on the data from 1992-2011 Taiwan Economic Journal (TEJ), all the publicly traded companies in the electronic manufacturing industry are included. Bivariate probit model, two-steps model, panel tobit model and dynamic panel model are employed as the estimation method. There are four main findings in this paper : First, firms will refer the previous investment experience to the decision on the current investment activities. Secondly, the negative interaction effects between the investment amount in R&D and in FDI suggest that R&D and FDI in China act as substitutes in investment relationship. Thirdly, firms that involve a single investment activity have the largest productivity advances, whether firms chose R&D or FDI in China. When firms involve both activities, their returns to scale on productivity will be dispersed. Fourthly, R&D complements exports from parent firms. Conversely, FDI in China substitutes exports from parent firms.