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Learning on the quick and cheap: Gains from trade through imported expertise


  • Jim Markusen
  • Thomas F. Rutherford


Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak . Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home, (b) producing domestic skilled workers earlier in time than if they the domestic economy had to rediscover the relevant knowledge through “reinventing the wheel”. We develop a three-period model in which the economy initially has no skilled workers. Workers can withdraw from the labor force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labor working with the experts become skilled in the second period. We analyze how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or “absorptive”) capacity of the domestic economy. Classification-

Suggested Citation

  • Jim Markusen & Thomas F. Rutherford, 2005. "Learning on the quick and cheap: Gains from trade through imported expertise," The Institute for International Integration Studies Discussion Paper Series iiisdp052, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp052

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    References listed on IDEAS

    1. Keller, Wolfgang, 2000. "Do Trade Patterns and Technology Flows Affect Productivity Growth?," World Bank Economic Review, World Bank Group, vol. 14(1), pages 17-47, January.
    2. Fosfuri, Andrea & Motta, Massimo & Ronde, Thomas, 2001. "Foreign direct investment and spillovers through workers' mobility," Journal of International Economics, Elsevier, vol. 53(1), pages 205-222, February.
    3. Ethier, Wilfred J. & Markusen, James R., 1996. "Multinational firms, technology diffusion and trade," Journal of International Economics, Elsevier, vol. 41(1-2), pages 1-28, August.
    4. Gong, Guan & Keller, Wolfgang, 2003. "Convergence and polarization in global income levels: a review of recent results on the role of international technology diffusion," Research Policy, Elsevier, vol. 32(6), pages 1055-1079, June.
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    6. Blomstrom, Magnus & Sjoholm, Fredrik, 1999. "Technology transfer and spillovers: Does local participation with multinationals matter?1," European Economic Review, Elsevier, vol. 43(4-6), pages 915-923, April.
    7. Wolfgang Keller, 2002. "Geographic Localization of International Technology Diffusion," American Economic Review, American Economic Association, vol. 92(1), pages 120-142, March.
    8. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
    9. Keller, Wolfgang, 1998. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, Elsevier, vol. 42(8), pages 1469-1481, September.
    10. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, vol. 53(1), pages 189-204, February.
    11. James R. Markusen & Thomas F. Rutherford & David Tarr, 2000. "Foreign Direct Investments in Services and the Domestic Market for Expertise," NBER Working Papers 7700, National Bureau of Economic Research, Inc.
    12. James Markusen & Thomas F. Rutherford & David Tarr, 2017. "Trade and direct investment in producer services and the domestic market for expertise," World Scientific Book Chapters,in: Trade Policies for Development and Transition, chapter 19, pages 439-458 World Scientific Publishing Co. Pte. Ltd..
    13. Hall, Bronwyn H. & Khan, Beethika, 2003. "Adoption of New Technology," Department of Economics, Working Paper Series qt3wg4p528, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    14. Glass, Amy Jocelyn & Saggi, Kamal, 2002. " Multinational Firms and Technology Transfer," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 495-513, December.
    15. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    16. Javorcik, Beata Smarzynska & Spatareanu, Mariana, 2008. "To share or not to share: Does local participation matter for spillovers from foreign direct investment?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 194-217, February.
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    Cited by:

    1. Carmen F. Castejón & Julia Wörz, 2006. "Good or Bad? The Influence of FDI on Output Growth: An industry-level analysis," wiiw Working Papers 38, The Vienna Institute for International Economic Studies, wiiw.
    2. Dieter M. Urban, 2010. "FDI, Technology Spillovers, and Wages," Review of International Economics, Wiley Blackwell, vol. 18(3), pages 443-453, August.
    3. Anna Bohnstedt, 2016. "Spillovers from Foreign Exporters," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 150-170, February.
    4. Caudillo Sanchez, Francisco, 2006. "Is information and communication technology (ICT) the right strategy for growth in Mexico?," Freiberg Working Papers 2006,17, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
    5. Kuan Xu & Zhengxi Lin, 2007. "Participation in Employer-sponsored Training in Canada: Role of Firm Characteristics and Worker Attributes," Department of Economics at Dalhousie University working papers archive paperb1_7_ic_workingpaper, Dalhousie, Department of Economics.

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    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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