Coauthors: Kalina Manova, Cristina Rujan and Monika Schnitzer
Abstract: Multinational companies play a key role in the increasing fragmentation of production and innovation across firms and countries. This paper examines how MNCs organize their global production and innovation activities. We establish novel stylized facts using rich data on the network of production affiliates and patents of German multinationals. We rationalize these facts with a heterogeneous-firm model in which companies choose the location, scale and integration of both manufacturing and R&D. Empirical evidence consistent with the model indicates that more productive MNCs innovate more intensively in terms of the number and quality of patents, offshore more innovation, and more frequently co-locate production and innovation.