IDEAS home Printed from https://ideas.repec.org/a/spr/weltar/v143y2007i1p1-26.html
   My bibliography  Save this article

Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

Author

Listed:
  • Valeria Gattai
  • Corrado Molteni

Abstract

This paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that the integrated solution is more likely to emerge when know-how easily spills over – i.e. when firms are endowed with more Intangible Assets or they belong to high tech industries. Probit estimates, from a new firm-level dataset, show that Japanese manufacturing operations in Europe are in line with these predictions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Valeria Gattai & Corrado Molteni, 2007. "Dissipation of Knowledge and the Boundaries of the Multinational Enterprise," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 143(1), pages 1-26, April.
    • Handle: RePEc:spr:weltar:v:143:y:2007:i:1:p:1-26
    DOI: 10.1007/s10290-007-0096-x
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10290-007-0096-x
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10290-007-0096-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of foreign entry, technology transfer, and foreign direct investment policy," Policy Research Working Paper Series 2737, The World Bank.
    2. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
    3. Wilfred J. Ethier & James R. Markusen, 2021. "Multinational firms, technology diffusion and trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 7, pages 131-158, World Scientific Publishing Co. Pte. Ltd..
    4. Gianmarco I.P. Ottaviano & Alessandro Turrini, 2002. "Distance and FDI when Contracts are Incomplete," Development Working Papers 165, Centro Studi Luca d'Agliano, University of Milano.
    5. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-245, May.
    6. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
    7. Horstmann, Ignatius J & Markusen, James R, 1996. "Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 1-19, February.
    8. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 729-761.
    9. Edwin Mansfield & Anthony Romeo, 1980. "Technology Transfer to Overseas Subsidiaries by U. S.-Based Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(4), pages 737-750.
    10. Aaditya Mattoo & Marcelo Olarreaga & Kamal Saggi, 2023. "Mode of foreign entry, technology transfer, and FDI policy," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 25, pages 567-583, World Scientific Publishing Co. Pte. Ltd..
    11. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    12. Dalia Marin & Thierry Verdier, 2008. "Power Inside The Firm and The Market: A General Equilibrium Approach," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 752-788, June.
    13. Peter J. Buckley & Mark Casson, 2010. "An Economic Model of International Joint Venture Strategy," Palgrave Macmillan Books, in: The Multinational Enterprise Revisited, chapter 6, pages 118-146, Palgrave Macmillan.
    14. Rugman, Alan M, 1986. "New Theories of the Multinational Enterprise: An Assessment of Internalization Theory," Bulletin of Economic Research, Wiley Blackwell, vol. 38(2), pages 101-118, May.
    15. Saggi, Kamal, 1999. "Foreign Direct Investment, Licensing, and Incentives for Innovation," Review of International Economics, Wiley Blackwell, vol. 7(4), pages 699-714, November.
    16. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Wiley Blackwell, vol. 35(1), pages 97-110, September.
    17. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market," Discussion Papers in Economics 10, University of Munich, Department of Economics.
    18. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "International Joint Ventures and the Boundaries of the Firm," NBER Working Papers 9115, National Bureau of Economic Research, Inc.
    19. M Krishna Erramilli, 1996. "Nationality and Subsidiary Ownership Patterns in Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(2), pages 225-248, June.
    20. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March.
    21. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-873, September.
    22. Gene M. Grossman & Elhanan Helpman, 2002. "Integration versus Outsourcing in Industry Equilibrium," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 85-120.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Duan, Yunlong & Liu, Shuling & Cheng, Hao & Chin, Tachia & Luo, Xuan, 2021. "The moderating effect of absorptive capacity on transnational knowledge spillover and the innovation quality of high-tech industries in host countries: Evidence from the Chinese manufacturing industry," International Journal of Production Economics, Elsevier, vol. 233(C).
    2. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 691-707, August.
    3. Karkinsky, Tom & Riedel, Nadine, 2012. "Corporate taxation and the choice of patent location within multinational firms," Journal of International Economics, Elsevier, vol. 88(1), pages 176-185.
    4. Onur Koska, 2009. "Foreign Direct Investment For Sale," Working Papers 0910, University of Otago, Department of Economics, revised Oct 2009.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Valeria Gattai, 2008. "A Tale of Three Countries: Italian, Spanish and Swiss Manufacturing Operations in China," The World Economy, Wiley Blackwell, vol. 31(8), pages 969-992, August.
    2. Lorenzo Casaburi & Valeria Gattai, 2009. "Why FDI? An Empirical Assessment Based on Contractual Incompleteness and Dissipation of Intangible Assets," Working Papers 164, University of Milano-Bicocca, Department of Economics, revised Jul 2009.
    3. Valeria Gattai, 2006. "From the Theory of the Firm to FDI and Internalisation: A Survey," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 65(2), pages 225-262, November.
    4. Valeria Gattai, 2010. "Firm's intangible assets and multinational activity: Full versus shared ownership," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 19(4), pages 553-589.
    5. Kukharskyy, Bohdan, 2020. "A tale of two property rights: Knowledge, physical assets, and multinational firm boundaries," Journal of International Economics, Elsevier, vol. 122(C).
    6. Yongmin Chen & Ignatius J. Horstmann & James R. Markusen, 2012. "Physical capital, knowledge capital, and the choice between FDI and outsourcing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 1-15, February.
    7. Gattai, Valeria, 2006. "A Tale of Three Countries: Italian, Spanish and Swiss Manufacturing Operations in China," Knowledge, Technology, Human Capital Working Papers 12104, Fondazione Eni Enrico Mattei (FEEM).
    8. Barbara Spencer, 2005. "International outsourcing and incomplete contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1107-1135, November.
    9. Gregory Corcos & Delphine M. Irac & Giordano Mion & Thierry Verdier, 2013. "The Determinants of Intrafirm Trade: Evidence from French Firms," The Review of Economics and Statistics, MIT Press, vol. 95(3), pages 825-838, July.
    10. Diego Puga & Daniel Trefler, 2005. "Wake up and smell the ginseng: The rise of incremental innovation in low-wage countries," Working Papers tecipa-193, University of Toronto, Department of Economics.
    11. Verena Nowak & Christian Schwarz & Jens Suedekum, 2012. "On the Organizational Structure of Multinational Firms - Which Sourcing Mode for which Input?," CESifo Working Paper Series 3823, CESifo.
    12. Morita, Hodaka & Nguyen, Xuan, 2021. "FDI and quality-enhancing technology spillovers," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    13. Jocelyn Glass, Amy & Saggi, Kamal, 2002. "Licensing versus direct investment: implications for economic growth," Journal of International Economics, Elsevier, vol. 56(1), pages 131-153, January.
    14. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    15. Catherine Laffineur & El Mouhoud, 2015. "The jobs at risk from globalization: the French case," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(3), pages 477-531, August.
    16. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," The World Bank Research Observer, World Bank, vol. 17(2), pages 191-235, September.
    17. Veugelers, Reinhilde & Cassiman, Bruno, 2004. "Foreign subsidiaries as a channel of international technology diffusion: Some direct firm level evidence from Belgium," European Economic Review, Elsevier, vol. 48(2), pages 455-476, April.
    18. Conconi, Paola & Legros, Patrick & Newman, Andrew F., 2012. "Trade liberalization and organizational change," Journal of International Economics, Elsevier, vol. 86(2), pages 197-208.
    19. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 482-496, August.
    20. Argentino Pessoa, 2008. "Multinational Corporations, Foreign Investment, and Royalties and License Fees: Effects on Host-Country Total Factor Productivity," Notas Económicas, Faculty of Economics, University of Coimbra, issue 28, pages 6-31, December.

    More about this item

    Keywords

    Dissipation; intangible assets; FDI; joint venture; internalization; Japan;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:weltar:v:143:y:2007:i:1:p:1-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.