We develop a model with a large R&D-intensive home firm that must decide whether to locate production domestically or to o¤shore it. Poli- cymakers have an interest in the firm's profits, the local external benefits generated by the firm's R&D and the employment provided by the do- mestic production facility. We demonstrate that attempts to boost the firm's R&D can encourage the firm to offshore its production. Hence, we highlight a possible conflict between two policy objectives: encouraging local R&D and discouraging the o¤shoring of production. In addition, if the government is concerned about the employment large domestic firms create, its R&D policy could potentially harm future productivity growth.