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Learning, Knowledge Diffusion and the Gains from Globalization

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  • Kunal Dasgupta

Abstract

We develop a dynamic, general equilibrium model to understand how multinationals affect host countries through knowledge diffusion. Workers learn from their managers and knowledge diffusion takes place through worker mobility. We identify two forces that determine wages : the labour demand effect and the learning effect. The former tends to raise wages while the latter tends to reduce it. We show that in a model without learning, an integrated steady-state equilibrium in which incumbent host country managers operate alongside multinationals, can never be a Pareto improvement for the host country. In contrast, we present a novel mechanism through which a Pareto improvement occurs in the presence of learning dynamics. We study how integration affects the life time earnings of agents and the degree of inequality in the host country, as well as, analyze the pattern of multinational activity. In the quantitative section of the paper, we calibrate our model to fit key moments from the U.S. wage distribution and quantify gains from integration. Our estimates suggest that learning produces welfare gains that range from 2% for middle-income countries to 43% for the low-income countries.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-364.

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Length: 52 pages
Date of creation: 30 Jul 2009
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-364

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Keywords: Multinationals; knowledge di¤usion; learning; welfare gains; worker mobility;

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Citations

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Cited by:
  1. Kunal Dasgupta, 2010. "Inequality and Growth in a Knowledge Economy," Working Papers, University of Toronto, Department of Economics tecipa-411, University of Toronto, Department of Economics.
  2. Sanne Hiller, 2013. "Does immigrant employment matter for export sales? Evidence from Denmark," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 149(2), pages 369-394, June.
  3. Alexander Monge-Naranjo, 2012. "Foreign firms and the diffusion of knowledge," Working Papers, Federal Reserve Bank of St. Louis 2012-055, Federal Reserve Bank of St. Louis.

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