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Reconciling the Evidence on the Knowledge Capital Model

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Author Info
Braconier, Henrik (National Institute of Economic Research)
Norbäck, Pehr-Johan () (The Research Institute of Industrial Economics)
Urban, Dieter () (Johannes Gutenberg - University of Mainz)

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Abstract

The Knowledge Capital Model (KC-model), described in Markusen (2002), encompasses both market size (horizontal) as well as factor endowment (vertical) explanations to why multinational production occurs. Although the KC-model seems intuitively appealing, the empirical support has, so far, been weak and even confused. In this study, we find strong, robust and consistent support for the KC-model. In contrast to previous studies, our skill measures follow directly from the model. We also use an enlarged dataset, where the date coverage is significantly improved. Our results also give estimated surfaces remarkably similar to theoretical simulations of the KC-model. In addition, the results give important insights into why previous studies have yielded such diverse results.

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Publisher Info
Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 590.

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Length: 35 pages
Date of creation: 31 Jan 2003
Date of revision:
Handle: RePEc:hhs:iuiwop:0590

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Related research
Keywords: Multinational Enterprise; Knowledge Capital Model; Vertical FDI;

Other versions of this item:

Find related papers by JEL classification:
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ronald B. Davies, 2002. "Hunting High and Low for Vertical FDI," University of Oregon Economics Department Working Papers 2002-12, University of Oregon Economics Department, revised 01 Aug 2002. [Downloadable!]
    Other versions:
  2. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating The Knowledge-Capital Model of the Multinational Enterprise: Comment," University of Oregon Economics Department Working Papers 2002-13, University of Oregon Economics Department, revised 01 Mar 2002. [Downloadable!]
    Other versions:
  3. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99. [Downloadable!]
  4. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  5. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-23, May. [Downloadable!] (restricted)
  6. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
    Other versions:
  7. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. James R. Markusen & Keith E. Maskus, 1999. "Multinational Firms: Reconciling Theory and Evidence," NBER Working Papers 7163, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June. [Downloadable!] (restricted)
    Other versions:
  10. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Blackwell Publishing, vol. 10(4), pages 694-707, November. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Helga Kristjánsdóttir, 2005. "The Knowledge-Capital Model and Small Countries," EPRU Working Paper Series 05-09, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  2. Petr Mariel & Susan Orbe & Carlos Rodríguez, 2007. "A time varying coefficient model for panel data: Foreign Direct Investment in European OECD countries," BILTOKI 200703, Universidad del País Vasco - Departamento de Economía Aplicada III (Econometría y Estadística). [Downloadable!]
  3. Chellaraj, Gnanaraj & Maskus, Keith E. & Mattoo, Aaditya, 2009. "Labor skills and foreign investment in a dynamic economy : estimating the knowledge-capital model for Singapore," Policy Research Working Paper Series 4950, The World Bank. [Downloadable!]
  4. Gnanaraj Chellaraj & Keith E. Maskus & Aaditya Mattoo, 2009. "Labor Skills and Foreign Direct Investment in a Dynamic Economy: Estimating the Knowledge-Capital Model for Singapore," Economics Study Area Working Papers 100, East-West Center, Economics Study Area. [Downloadable!]
  5. Gnanaraj Chellaraj & Aaditya Mattoo, 2009. "Can the Knowledge-Capital Model Explain Sectoral Foreign Invesment? Evidence From Singapore," Economics Study Area Working Papers 101, East-West Center, Economics Study Area. [Downloadable!]
  6. Jim Markusen, 2004. "Regional Integration and Third-Country Inward Investment," Business and Politics, Berkeley Electronic Press, vol. 6(1). [Downloadable!]
  7. Dieter M. Urban, 2006. "Multilateral Investment Agreement in a Political Equilibrium," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Kiyoyasu Tanaka, 2009. "Vertical Foreign Direct Investment: Evidence from Japanese and U.S. Multinational Enterprises," Global COE Hi-Stat Discussion Paper Series gd08-046, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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