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Foreign firms and the diffusion of knowledge

Author

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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.

Suggested Citation

  • Alexander Monge-Naranjo, 2012. "Foreign firms and the diffusion of knowledge," Working Papers 2012-055, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2012-055
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    References listed on IDEAS

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    Cited by:

    1. Sampson, Thomas, 2013. "Brain drain or brain gain? Technology diffusion and learning on-the-job," Journal of International Economics, Elsevier, vol. 90(1), pages 162-176.
    2. Sampson, Thomas, 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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    Keywords

    International business enterprises ; Technology - Economic aspects;

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