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The Gravity of Knowledge

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  • Wolfgang Keller
  • Stephen Ross Yeaple

Abstract

We analyze the international operations of multinational firms to measure the spatial barriers to transferring knowledge. We model firms that can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). The model shows how knowledge transfer costs can be inferred from multinationals? operations. We use firm-level data on the trade and sales of US multinationals to confirm the model?s predictions. Disembodied knowledge transfer costs not only make the standard multinational firm model consistent with the fact that affiliate sales fall in distance but quantitatively accounts for much of the gravity in multinational activity.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 4 (June)
Pages: 1414-44

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:4:p:1414-44

Note: DOI: 10.1257/aer.103.4.1414
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Citations

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Cited by:
  1. James E. Anderson, 2010. "The Gravity Model," NBER Working Papers 16576, National Bureau of Economic Research, Inc.
  2. Bahar, Dany & Hausmann, Ricardo & Hidalgo, César A., . "Neighbors and the Evolution of the Comparative Advantage of Nations: Evidence of International Knowledge Diffusion?," Working Paper 97671, Harvard University OpenScholar.
  3. Andres Rodriguez-Clare & Natalia Ramondo, 2007. "Trade, Multinational Production, and the Gains from Openness," 2007 Meeting Papers 819, Society for Economic Dynamics.
  4. Cappelli, Riccardo & Montobbio, Fabio, 2013. "European Integration and Knowledge Flows across European Regions," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201309, University of Turin.
  5. Egger, Peter & Fahn, Matthias & Merlo, Valeria & Wamser, Georg, 2014. "On the genesis of multinational foreign affiliate networks," European Economic Review, Elsevier, vol. 65(C), pages 136-163.

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