This paper investigates the relationship between a multinational firms choice of entry modes for international expansion and its domestic R&D activity by developing a game-theoretical model to derive testable hypothesis.Our model predicts that a firm having a higher capacity or belonging to an industry with a higher productivity in R&D activity tends to undertake FDI to "jump the tariff".Facing a relatively high R&D leakage and a comparatively small difference in fixed costs between cross-border M&A and greenfield FDI, a multinational firm tends to choose greenfield investment rather than cross-border M&A.A firm-level panel dataset on Taiwanese manufacturing firms is used to test the validity of our theoretical framework.Our empirical results are generally consistent with the theoretical prediction.