Working Paper: CEPR ID: DP7553
Authors: Wolfgang Keller; Stephen R. Yeaple
Abstract: How large are spatial barriers to transferring knowledge? We analyze the international operations of multinational firms to answer this fundamental question. In our model firms can transfer bits of knowledge to their foreign a¢ liates in either embodied (traded intermediates) or disembodied form (direct communication). Knowledge transfer costs interact with the knowledge intensity of production to determine the geographic structure of multinationals' input sourcing as well as its competitiveness in foreign markets. The model shows how data on observable trade costs and features of multinationals' global operations reveal the size and nature of knowledge transfer costs. Our empirical analysis confirms the model's predictions using firm-level data, quantifies the aggregate implications of the model for the structure of multinationals' operations, and demonstrates that transfer costs shape the knowledge content of intra-firm trade flows.
Keywords: communication; foreign direct investment; intrafirm trade; multinational firms; noncodified knowledge; offshoring; technology transfer; vertical production sharing
JEL Codes: F1; F2; O23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increased trade costs (F19) | Lower sales in more knowledge-intensive industries (L19) |
| Knowledge intensity of production (D20) | Level of affiliate sales globally (F61) |
| Increased trade costs (F19) | Higher reliance on embodied knowledge transfer (J24) |
| Knowledge intensity of production (D20) | Composition of knowledge transfers utilized by multinationals (O36) |