Patterns of US-based Firms’ Foreign R&D Investments

Research and development (R&D) is central to a firm’s competitiveness, both domestically and internationally. Multinational firms, however, do not conduct R&D in a single nation but across multiple locations. Foreign R&D investment is appealing for several reasons. Other countries can potentially offer diverse global talent, lower costs, and unique R&D incentives, as well as enable companies to adapt products to local markets. In turn, economies that host R&D benefit significantly, as such investment stimulates domestic jobs and economic growth.

Data from the National Science Foundation shows that U.S.-based firms have increased foreign R&D investment flows over the last decade. In 2013, these firms invested $73.1 billion in R&D abroad. By 2023, that figure increased 108 percent to $151.8 billion, or 62 percent when controlled for the U.S. rate of inflation. (See figure 1.) Foreign R&D investment was 17 percent of American firms’ total worldwide R&D spending.

Figure 1:U.S.-based firms' total foreign R&D investment flows

Breaking down these investments by country, U.S.-based firms spent the most on R&D in India, the United Kingdom, and China in 2023. Of the total $151.8 billion invested abroad, India received $20.7 billion, the United Kingdom $16.9 billion, and China $13.1 billion. By comparison, countries like Turkey and Indonesia received relatively small amounts, at $245 million and $72 million, respectively. (See figure 2.)

Figure 2: Top 10 nations receiving U.S.-based firms' R&D investment flows in 2023

Adjusting for each economy’s size reveals different patterns. When measured as a share of GDP, the countries receiving the most R&D investment from American firms in 2023 were Israel (1.8 percent), Ireland (0.9 percent), Singapore (0.8 percent), Switzerland (0.8 percent), and India (0.6 percent). In contrast, China, a major geopolitical rival to the United States, received just 0.07 percent of R&D spending from U.S.-based firms as a share of GDP. (See figure 3.)

Figure 3: Top 10 nations receiving U.S.-based firms' foreign R&D investment flows as a share of the receiving nations’ GDP

Examining growth over the past decade, U.S.-based firms have expanded R&D spending the fastest in Luxembourg, Chile, and Taiwan. Between 2013 and 2023, U.S.-based firms’ R&D investments increased by 671 percent in Luxembourg, 493 percent in Chile, and 384 percent in Taiwan. (See figure 4.) Overall, U.S.-based firms increased their foreign R&D by 108 percent. Surpassing this, U.S.-based firms increased their R&D in China slightly by 127 percent. Meanwhile, Germany and Brazil saw the lowest growth, at 19 percent and 12 percent, respectively.

Figure 4: Top 10 nations with the highest percentage growth in U.S.-based firms' R&D investments

To encourage more domestic R&D, U.S. policymakers should strengthen private-sector investment incentives. To start, policymakers should double the regular R&D tax credit from 20 to 40 percent and the Simplified Tax Credit from 14 to 28 percent. Not only would such increases make domestic investment more attractive, but they would also benefit the U.S. economy as a whole by creating more jobs and boosting economic growth. With China’s R&D spending already surpassing the United States when adjusted for cost-efficiency, American policymakers must act now to incentivize U.S.-based firms to increase their R&D investment at home rather than abroad.