Abstract
This study investigates the impact of geographic distance between the home country of a Multinational Enterprise (MNE) and host countries where subsidiaries are located on the MNE's decision to carry out overseas research and development (R&D) activities in the host market. The analysis is based on a sample of 1,161 foreign affiliates taken from the PITEC database (Technological Innovation panel), based on the 2005 survey of firms' technological innovation activities compiled by the Spanish Statistical Institute (INE). Data allow to distinguish between internal and external R&D activities of firms. I find that, in the sample of Spanish subsidiaries of foreign MNEs, geographic distance negatively affects the likelihood of affiliates sourcing external R&D, but not that of carrying out internal R&D. Furthermore, the results also show that, conditional on doing external R&D, the greater the distance between the source and the host countries, the lower the probability of subsidiaries procuring R&D from local sources in the host country.