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Reconciling the Evidence on the Knowledge Capital Model

Author

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  • Braconier, Henrik

    (National Institute of Economic Research)

  • Norbäck, Pehr-Johan

    (The Research Institute of Industrial Economics)

  • Urban, Dieter

    (Johannes Gutenberg - University of Mainz)

Abstract

The Knowledge Capital Model (KC-model), described in Markusen (2002), encompasses both market size (horizontal) as well as factor endowment (vertical) explanations to why multinational production occurs. Although the KC-model seems intuitively appealing, the empirical support has, so far, been weak and even confused. In this study, we find strong, robust and consistent support for the KC-model. In contrast to previous studies, our skill measures follow directly from the model. We also use an enlarged dataset, where the date coverage is significantly improved. Our results also give estimated surfaces remarkably similar to theoretical simulations of the KC-model. In addition, the results give important insights into why previous studies have yielded such diverse results.

Suggested Citation

  • Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2003. "Reconciling the Evidence on the Knowledge Capital Model," Working Paper Series 590, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0590
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    References listed on IDEAS

    as
    1. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 980-994, June.
    2. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, April.
    3. James R. Markusen & Keith E. Maskus, 2002. "Discriminating Among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
    4. David L. Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, vol. 4(Jun), pages 79-99.
    5. Ronald B. Davies, 2008. "Hunting High and Low for Vertical FDI," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 250-267, May.
    6. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics.
    7. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
    8. Blomstrom, Magnus & Goldberg, Linda S. (ed.), 2001. "Topics in Empirical International Economics," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226060835.
    9. Barro, Robert J & Lee, Jong Wha, 1996. "International Measures of Schooling Years and Schooling Quality," American Economic Review, American Economic Association, vol. 86(2), pages 218-223, May.
    10. James R. Markusen & Keith E. Maskus, 2001. "Multinational Firms: Reconciling Theory and Evidence," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 71-98, National Bureau of Economic Research, Inc.
    11. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    12. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
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    More about this item

    Keywords

    Multinational Enterprise; Knowledge Capital Model; Vertical FDI;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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