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The Gravity of Knowledge

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  • Wolfgang Keller
  • Stephen R. Yeaple

Abstract

How large are spatial barriers to transferring knowledge? We analyze the international operations of multinational firms to answer this fundamental question. In our model firms can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). Knowledge transfer costs interact with the knowledge intensity of production to determine the geographic structure of multinationals' input sourcing as well as its competitiveness in foreign markets. The model shows how data on observable trade costs and features of multinationals' global operations reveal the size and nature of knowledge transfer costs. Our empirical analysis confirms the model's predictions using firm-level data, quantifies the aggregate implications of the model for the structure of multinationals' operations, and demonstrates that transfer costs shape the knowledge content of intra-firm trade flows.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15509.

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Date of creation: Nov 2009
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Publication status: published as Wolfgang Keller & Stephen Ross Yeaple, 2013. "The Gravity of Knowledge," American Economic Review, American Economic Association, vol. 103(4), pages 1414-44, June.
Handle: RePEc:nbr:nberwo:15509

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Cited by:
  1. Cappelli, Riccardo & Montobbio, Fabio, 2013. "European Integration and Knowledge Flows across European Regions," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201309, University of Turin.
  2. Egger, Peter & Fahn, Matthias & Merlo, Valeria & Wamser, Georg, 2014. "On the genesis of multinational foreign affiliate networks," Munich Reprints in Economics 20554, University of Munich, Department of Economics.
  3. Bahar, Dany & Hausmann, Ricardo & Hidalgo, Cesar A., 2013. "Neighbors and the Evolution of the Comparative Advantage of Nations: Evidence of International Knowledge Diffusion?," Working Paper Series rwp13-025, Harvard University, John F. Kennedy School of Government.
  4. Natalia Ramondo & Andrés Rodríguez-Clare, 2009. "Trade, Multinational Production, and the Gains from Openness," NBER Working Papers 15604, National Bureau of Economic Research, Inc.
  5. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, 09.

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