Multinational firms and the internationalization of green R&D: A review of the evidence and policy implications

•Green R&D is becoming increasingly globalized.•17% of the green patents of our sample of 1200 MNCs have been invented abroad.•Most green R&D offshoring takes place among OECD countries, and towards China.•Environmental policy is key to attracting multinationals’ green offshoring activities.

This paper presents novel empirical evidence on the internationalization of green R&D by multinational firms (MNCs), as measured by patents data. Using data on inventors’ addresses for the set of 1200 MNCs firms patenting in green technologies over the 2004–2009 period, we find that about 17% of green patents result from MNCs R&D investments conducted outside their home countries. MNCs tend to locate their foreign green R&D activities in other OECD markets and in China, in particular in lightings and solar technologies. The empirical analysis reveals that the probability of conducting green R&D abroad increases with the host country’s stringency of environmental regulation, market size and (green) R&D intensity. Also, relatively lower wages for scientists and engineers, and stronger protection for intellectual property rights in the host country increase the likelihood for MNCs to offshore green R&D. The paper concludes by discussing the policy implications of this changing global innovation landscape.