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Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

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Author Info
Valeria Gattai (Bocconi University and ISESAO)

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Abstract

This paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that the integrated solution is more likely to emerge when know-how easily spills over – i.e. when firms are endowed with more Intangible Assets or they belong to high tech industries. Probit estimates, from a new firm-level dataset, show that Japanese manufacturing operations in Europe are in line with these predictions.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2005.121.

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Date of creation: Oct 2005
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Handle: RePEc:fem:femwpa:2005.121

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Related research
Keywords: Dissipation; Intangible assets; FDI; joint-venture; Internalisation; Japan;

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies

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References listed on IDEAS
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  1. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "International Joint Ventures and the Boundaries of the Firm," NBER Working Papers 9115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
    Other versions:
  4. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September. [Downloadable!] (restricted)
  5. Mattoo, Aaditya & Olarreaga, Marcelo & Saggi, Kamal, 2001. "Mode of foreign entry, technology transfer, and foreign direct investment policy," Policy Research Working Paper Series 2737, The World Bank. [Downloadable!]
  6. Peter J Buckley & Mark Casson, 1996. "An Economic Model of International Joint Venture Strategy," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 27(5), pages 849-876, December. [Downloadable!] (restricted)
  7. Marin, Dalia & Verdier, Thierry, 2002. "Power Inside the Firm and the Market: a General Equilibrium Approach," CEPR Discussion Papers 3526, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Saggi, Kamal, 1999. "Foreign Direct Investment, Licensing, and Incentives for Innovation," Review of International Economics, Blackwell Publishing, vol. 7(4), pages 699-714, November.
  9. Robert C. Feenstra & Gordon H. Hanson, 1996. "Globalization, Outsourcing, and Wage Inequality," NBER Working Papers 5424, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Ottaviano, Gianmarco Ireo Paolo & Turrini, Alessandro Antonio, 2003. "Distance and FDI When Contracts are Incomplete," CEPR Discussion Papers 4041, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. M Krishna Erramilli, 1996. "Nationality and Subsidiary Ownership Patterns in Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 27(2), pages 225-248, June. [Downloadable!] (restricted)
  13. Glass, Amy Jocelyn & Saggi, Kamal, 2002. "Intellectual property rights and foreign direct investment," Journal of International Economics, Elsevier, vol. 56(2), pages 387-410, March. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
    Other versions:
  15. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February. [Downloadable!] (restricted)
  16. Blomstrom, Magnus, 1986. "Foreign Investment and Productive Efficiency: The Case of Mexico," Journal of Industrial Economics, Blackwell Publishing, vol. 35(1), pages 97-110, September. [Downloadable!] (restricted)
  17. Mansfield, Edwin & Romeo, Anthony, 1980. "Technology Transfer to Overseas Subsidiaries by U.S.-Based Firms," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 737-50, December. [Downloadable!] (restricted)
  18. Rugman, Alan M, 1986. "New Theories of the Multinational Enterprise: An Assessment of Internalization Theory," Bulletin of Economic Research, Blackwell Publishing, vol. 38(2), pages 101-18, May.
  19. Horstmann, Ignatius J & Markusen, James R, 1996. "Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 1-19, February.
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  20. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July. [Downloadable!] (restricted)
    Other versions:
  21. Peter J Buckley & Mark Casson, 1996. "An Economic Model of International Joint Venture Strategy," Journal of International Business Studies, Palgrave Macmillan Journals, vol. 27(4), pages 849-876, December. [Downloadable!] (restricted)
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