NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Multinational Firms, Technology Diffusion and Trade

Wilfred J. Ethier, James R. Markusen

NBER Working Paper No. 3825
Issued in August 1991
NBER Program(s):   ITI   IFM

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.

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Document Object Identifier (DOI): 10.3386/w3825

Published: Journal of International Economics, vol.41, 1996, pp. 1-28.

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