Working Paper: CEPR ID: DP2194
Authors: Andrea Fosfuri; Massimo Motta; Thomas Ronde
Abstract: We analyze a model where a multinational firm can use a superior technology in a foreign subsidiary only after training a local worker. Technological spillovers from foreign direct investment arise when this worker is later hired by a local firm. Pecuniary spillovers arise when the foreign affiliate pays the trained worker a higher wage to prevent her from moving to a local competitor. We study conditions under which these spillovers occur. We also show that the multinational firm might find it optimal to export instead of investing abroad to avoid dissipation of its intangible assets or the payment of a higher wage to the trained worker.
Keywords: multinational corporations; externalities; spillovers; training; labour mobility
JEL Codes: F23; J63; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MNE trains worker (J24) | local firm benefits from technology (L63) |
| MNE raises wages to retain trained workers (J39) | worker retention (J63) |
| worker retention (J63) | affects competitive landscape (L19) |
| MNE's profits exceed local competitors' profits (F23) | less likely technological spillovers occur (O39) |
| degree of product market competition (L13) | influences labor mobility (J61) |
| low absorptive capacity in local firms (F35) | diminishes likelihood of benefiting from FDI (F23) |
| MNE prefers to export rather than invest abroad (F23) | prevents diffusion of technology (O33) |