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Extant research on research and development (R and D) internationalization has not examined how effective foreign R and D investments are in generating positive returns for the investing firms, in particular in comparison and conjunction with the effects of domestic R and D investments. We examine the effectiveness of international knowledge sourcing through foreign R and D in an empirical analysis of the productivity effects of foreign and domestic R and D investments in a large panel of firms based in the Netherlands. We argue that foreign and domestic R and D will exhibit complementarity in their effects on productivity, but that the roles of domestic and foreign R and D depend on the relative position of the home country with respect to the global technology frontier and the related relative opportunities for knowledge sourcing abroad. We estimate a dynamic panel data model derived from a knowledge stock augmented production function framework allowing for productivity convergence and declining returns to R and D. We confirm that for firms active in industries in which the home country is behind the global technology frontier, foreign R and D provides positive returns and has a complementary relationship with domestic R and D. For industries at the global technology frontier, in contrast, domestic R and D is the primary source of productivity growth. © 2015 Academy of International Business All rights reserved.