R&D, foreign direct investment and technology sourcing?

The U.S. experienced a surge in foreign direct investment (FDI) during the 1980s. To date, we do not fully understand what the research and development (R & D) effects of FDI are. FDI can affect the host country's R & D activities in at least two ways. First, if domestic firms perceive foreign entrants as serious threats to their domestic market share, they will change their R & D policies hence industry-wide R & D intensity also changes. Second, the increase in R & D intensity may be attributed to foreign firms' R & D activities to acclimatize to U.S. conditions. Using a panel of 4-digit SIC industries from 1981-91, there is some evidence that the latter scenario may be a possible explanation for the observed changes in industry-wide R & D intensity.