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The Gravity of Knowledge

  • Wolfgang Keller
  • Stephen R. Yeaple

How large are spatial barriers to transferring knowledge? We analyze the international operations of multinational firms to answer this fundamental question. In our model firms can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). Knowledge transfer costs interact with the knowledge intensity of production to determine the geographic structure of multinationals' input sourcing as well as its competitiveness in foreign markets. The model shows how data on observable trade costs and features of multinationals' global operations reveal the size and nature of knowledge transfer costs. Our empirical analysis confirms the model's predictions using firm-level data, quantifies the aggregate implications of the model for the structure of multinationals' operations, and demonstrates that transfer costs shape the knowledge content of intra-firm trade flows.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15509.

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Date of creation: Nov 2009
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Publication status: published as Wolfgang Keller & Stephen Ross Yeaple, 2013. "The Gravity of Knowledge," American Economic Review, American Economic Association, vol. 103(4), pages 1414-44, June.
Handle: RePEc:nbr:nberwo:15509
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