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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. James R. Markusen & Thomas F. Rutherford & David Tarr, 2000. "Foreign Direct Investments in Services and the Domestic Market for Expertise," NBER Working Papers 7700, National Bureau of Economic Research, Inc.
  2. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
  3. 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.
  4. Wolfgang Keller, 2000. "Geographic Localization of International Technology Diffusion," NBER Working Papers 7509, National Bureau of Economic Research, Inc.
  5. Blomström, Magnus & Sjöholm, Fredrik, 1998. "Technology Transfer and Spillovers: Does Local Participation with Multinationals Matter?," Working Paper Series in Economics and Finance 268, Stockholm School of Economics.
  6. 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.
  7. Bronwyn H. Hall & Beethika Khan, 2004. "Adoption of New Technology," Development and Comp Systems 0401001, EconWPA.
  8. Keller, Wolfgang, 1998. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, Elsevier, vol. 42(8), pages 1469-1481, September.
  9. James R. Markusen, 1998. "Contracts, Intellectual Property Rights, and Multinational Investment in Developing Countries," NBER Working Papers 6448, National Bureau of Economic Research, Inc.
  10. 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.
  11. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
  12. 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.
  13. 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.
  14. Keller, Wolfgang, 2000. "Do Trade Patterns and Technology Flows Affect Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 14(1), pages 17-47, January.
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Cited by:
  1. Carmen F. Castejón & Julia Wörz, 2006. "Good or Bad? The Influence of FDI on Output Growth: An industry-level analysis," wiiw Working Papers 38, The Vienna Institute for International Economic Studies, wiiw.
  2. Dieter M. Urban, 2010. "FDI, Technology Spillovers, and Wages," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 443-453, 08.
  3. 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.
  4. 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 paperb1_7_ic_workingpaper, Dalhousie, Department of Economics.

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