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The Hardships of Long Distance Relationships: Time Zone Proximity and Knowledge Transmission within Multinational Firms

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  • Dany Bahar

Abstract

Using a unique dataset on worldwide multinational corporations with precise location of headquarters and affiliates, I present evidence of a trade-off between distance to the headquarters and the knowledge intensity of the foreign subsidiary’s economic activity, emerging from dynamics related to the proximity-concentration hypothesis. This trade-off is strongly diminished the higher the overlap in working hours between the headquarters and its foreign subsidiary. In order to rule out biases arising from confounding factors, I implement a regression discontinuity framework to show that the economic activity of a foreign subsidiary located just across the time zone line that increases the overlap in working hours with its headquarters is, on average, about one percent higher in the knowledge intensity scale. I find no evidence of the knowledge intensity and distance trade-off weakening when a non-stop flight exists between the headquarters and the foreign subsidiary. The findings suggest that lower barriers to real-time communication within the multinational corporation play an important role in the location strategies of multinational corporations.

Suggested Citation

  • Dany Bahar, 2018. "The Hardships of Long Distance Relationships: Time Zone Proximity and Knowledge Transmission within Multinational Firms," CESifo Working Paper Series 7104, CESifo.
    • Handle: RePEc:ces:ceswps:_7104
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    Cited by:

    1. Blonigen, Bruce A. & Cristea, Anca & Lee, Donghyun, 2020. "Evidence for the effect of monitoring costs on foreign direct investment," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 601-617.
    2. Joachim Wagner, 2019. "Time zones and German exports: first evidence from firm-product level data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(1), pages 181-198, February.

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    More about this item

    Keywords

    multinational firms; multinational corporations; knowledge; location; proximity concentration hypothesis; FDI;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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