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Learning on the Quick and Cheap: Gains from Trade Through Imported Expertise

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  • Markusen, James R.
  • Rutherford, Tom

Abstract

Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak. Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home; (b) producing domestic skilled workers earlier in time than if they had to rediscover the relevant knowledge through ‘reinventing the wheel’. We develop a three-period model in which the economy initially has no skilled workers. Workers can withdraw from the labour force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labour working with the experts become skilled in the second period. We analyse how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or ‘absorptive’) capacity of the domestic economy.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4504.

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Date of creation: Jul 2004
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Handle: RePEc:cpr:ceprdp:4504

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Keywords: foreign experts; productivity growth; skilled labour; transmission mechanism;

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References

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  1. Fosfuri, Andrea & Motta, Massimo & Rønde, Thomas, 1999. "Foreign Direct Investment and Spillovers through Workers' Mobility," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2194, C.E.P.R. Discussion Papers.
  2. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August.
  3. Magnus Blomstrom & Fredrik Sjoholm, 1998. "Technology Transfer and Spillovers? Does Local Participation with Multinationals Matter?," NBER Working Papers 6816, National Bureau of Economic Research, Inc.
  4. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
  5. Markusen, James & Rutherford, Thomas F. & Tarr, David, 2000. "Foreign direct investment in services and the domestic market for expertise," Policy Research Working Paper Series 2413, The World Bank.
  6. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  7. James Markusen & Thomas Rutherford & David Tarr, 2005. "Trade and direct investment in producer services and the domestic market for expertise," Canadian Journal of Economics, Canadian Economics Association, vol. 38(3), pages 758-777, August.
  8. Gong, Guan & Keller, Wolfgang, 2003. "Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion," Research Policy, Elsevier, vol. 32(6), pages 1055-1079, June.
  9. Glass, Amy Jocelyn & Saggi, Kamal, 1999. "Multinational firms and technology transfer," Policy Research Working Paper Series 2067, The World Bank.
  10. Wolfgang Keller, 1996. "Are International R&D Spillovers Trade-related? Analyzing Spillovers among Randomly Matched Trade Partners," International Trade, EconWPA 9608002, EconWPA.
  11. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
  12. Bronwyn H. Hall & Beethika Khan, 2003. "Adoption of New Technology," NBER Working Papers 9730, National Bureau of Economic Research, Inc.
  13. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, vol. 53(1), pages 189-204, February.
  14. Keller, Wolfgang, 2000. "Do Trade Patterns and Technology Flows Affect Productivity Growth?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(1), pages 17-47, January.
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Cited by:
  1. Caudillo Sanchez, Francisco, 2006. "Is information and communication technology (ICT) the right strategy for growth in Mexico?," Freiberg Working Papers 2006,17, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
  2. Kuan Xu & Zhengxi Lin, 2007. "Participation in Employer-sponsored Training in Canada: Role of Firm Characteristics and Worker Attributes," Department of Economics at Dalhousie University working papers archive, Dalhousie, Department of Economics paperb1_7_ic_workingpaper, Dalhousie, Department of Economics.
  3. Carmen Fillat Castejón & Julia Woerz, 2006. "Good or bad? The influence of FDI on output growth. An industry-level analysis," Documentos de Trabajo, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza dt2006-01, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
  4. Dieter M. Urban, 2007. "FDI Technology Spillovers and Wages," CESifo Working Paper Series 2132, CESifo Group Munich.

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