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On Multinational Firms, Diffusion of Skills and Development

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  • Alexander Monge-Naranjo

    ()
    (Economics Northwestern University)

Abstract

I study the implications for the development of a country hosting of multinational firms. The paper argues that despite the negative impact on existing local firms, the presence of foreign firms induce the emergence of a new sector of domestic firms and that in the long term, the country to converge to the income level of the developed (source) country. I study the equilibria of close and open economies and show that for a set of initial conditions, the only possibility for a country to develop is to open to multinational firms. Moreover, the model shows that openness to multinational firms eliminates the possibility that a country unilaterally falls back into underdevelopment. The paper also shows that entry of foreign firms may excessively impair the accumulation of productivity of existing domestic firms.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 709.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:709

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Keywords: Multinational Firms; Dynamic coalitions; Skill diffusion; Growth;

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