Working Paper: NBER ID: w3825
Authors: Wilfred J. Ethier; James R. Markusen
Abstract: Empirical evidence indicates a close association between multinational firms and knowledge capital, a public good within the firm. We model a firm which wishes to exploit its knowledge capital abroad, but whose workers learn all the knowledge necessary for production and can defect and produce the good themselves. The home firm must then choose between costly exporting and the possible dissipation of its knowledge capital by producing abroad. The paper examines the choice between exporting, licensing, and acquiring a subsidiary in this environment. We analyze the cost and technology parameters that support the alternative modes of serving the foreign market, and we describe the international equilibrium that jointly determines the pattern of specialization and the market mode.
Keywords: multinational firms; technology diffusion; international trade; knowledge capital
JEL Codes: F23; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MNEs utilize knowledge-based capital (O36) | dissemination of technology across borders (O36) |
| home firm possesses knowledge capital (D25) | decision to export or license knowledge (L24) |
| decision to export (F10) | costs and risks related to knowledge dissipation (O36) |
| licensing knowledge (D45) | foreign producer access to knowledge (O36) |
| foreign producer access to knowledge (O36) | potential future competition (L49) |
| costs of exporting, foreign wage relative to home wage, competitive landscape of home firms (F16) | home firm’s decision-making (L21) |
| different supply modes (L90) | distinct equilibrium outcomes (D50) |
| market structure (D49) | firm’s profitability and strategic choices (L21) |