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Foreign firms and the diffusion of knowledge

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  • Alexander Monge-Naranjo

Abstract

This paper constructs a model to examine the impact of foreign firms on a developing Country’s own accumulation of entrepreneurial knowledge. In the model, entrepreneurial skills are built up on the basis of productive ideas that diffuse internally (at the inside of firms) and externally (spillovers.) Openness to foreign firms enhances the aggregate exposure to ideas but also reduces the returns to investing in entrepreneurial skills. When externalities are present, openness can be welfare reducing. However, regardless of the relative importance of externalities, simple quantitative exercises suggest that the gains of openness are positive and can be large.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-055.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-055

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Keywords: International business enterprises ; Technology - Economic aspects;

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Cited by:
  1. Manuel García-Santana, 2013. "Foreign Firms, Distribution of Income, and the Welfare of Developing Countries," 2013 Meeting Papers 1044, Society for Economic Dynamics.
  2. Thomas Sampson, 2012. "Brain drain or brain gain? Technology diffusion and learning on-the-job," LSE Research Online Documents on Economics 51503, London School of Economics and Political Science, LSE Library.
  3. Thomas Sampson, 2012. "Brain Drain or Brain Gain? Technology Diffusion and Learning On-the-job," CEP Discussion Papers dp1168, Centre for Economic Performance, LSE.

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