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On Multinational Firms, Diffusion of Skills and Development


  • Alexander Monge-Naranjo

    () (Economics Northwestern University)


I study the implications for the development of a country hosting of multinational firms. The paper argues that despite the negative impact on existing local firms, the presence of foreign firms induce the emergence of a new sector of domestic firms and that in the long term, the country to converge to the income level of the developed (source) country. I study the equilibria of close and open economies and show that for a set of initial conditions, the only possibility for a country to develop is to open to multinational firms. Moreover, the model shows that openness to multinational firms eliminates the possibility that a country unilaterally falls back into underdevelopment. The paper also shows that entry of foreign firms may excessively impair the accumulation of productivity of existing domestic firms.

Suggested Citation

  • Alexander Monge-Naranjo, 2006. "On Multinational Firms, Diffusion of Skills and Development," 2006 Meeting Papers 709, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:709

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    More about this item


    Multinational Firms; Dynamic coalitions; Skill diffusion; Growth;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights


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