Barriers to Knowledge Creation in the Multinational Firm

This paper shows that knowledge creation, as measured by patents, is increasingly conducted in cross-border collaborative teams of inventors. It documents the importance of cross-border communication costs by showing that a higher overlap in business hours is associated with increased cross-border collaboration. This effect is distinct from the effect of physical distance, which matters as well. It is stronger for technology classes where lab experiments are involved and thus more frequent interactions may be required. The data further suggest that episodes of telecommunications liberalization (and the resulting decline in the cost of international calls) lead to an increase in cross-border collaboration, particularly when the business hour overlap between the headquarters and a subsidiary is larger. This effect is stronger for experiment-based technology classes. Less successful inventors respond more than their most successful peers.