R&D effort and US exports and foreign affiliate production of manufactures

This paper examines the relationship between US R&D expenditures and the pattern of US manufacturing exports and foreign affiliate sales across industries and regions for the years 1966 and 1976. While differences in relative research capability between the United States and the rest of the world have narrowed over this period, research effort still significantly explains the pattern of US sales in foreign markets. For any region, the export and foreign affiliate sales performance of research-intensive industries exceeds that of non-research-intensive industries. The relative performance of the formed is greater in regions with larger market size and high per capita income. The analysis also reveals that over the time period studied the ratio of US exports to foreign affiliate sales has generally fallen for all industries and foreign markets.These observations accord with a broad interpretation of the product cycle theory. While the United States has lost its uniqueness as a location of innovation, the ability to develop and market new products through R&D expenditures is still a strong force behind its exports and sale abroad. The decrease in exports relative to foreign affiliate sales may reflect a more rapid shift in comparative advantage in the production of such products to foreign locations. Hence the positive effect on US exports of development of any given new product may be becoming more short-lived.