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Foreign firms and the diffusion of knowledge

  • Alexander Monge-Naranjo

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.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-055.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-055
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  19. Agarwal, Rajshree & Echambadi, Raj & Franco, April M. & Sarkar, M. B., 2002. "Knowledge Transfer through Congenital Learning: Spin-Out Generation, Growth and Survival," Working Papers 02-0101, University of Illinois at Urbana-Champaign, College of Business.
  20. Maurice Kugler, 2006. "Spillovers From Foreign Direct Investment:Within Or Between Industries?," BORRADORES DE ECONOMIA 003523, BANCO DE LA REPÚBLICA.
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