FEEM working papers "Note di lavoro" series
2005 .121

Dissipation of Knowledge and the Boundaries of the Multinational Enterprise


Authors: Valeria Gattai, Corrado Molteni
Series: Economy and Society
Editor: Gianmarco I.P. Ottaviano
Type: Journal
Keywords: Dissipation,Intangible assets,FDI,joint-venture,Internalisation,Japan
JEL n.: F23,C25,O5
JEL: Review of World Economics/Weltwirtschaftliches Archiv
Pages: Vol. 143, No. 1, pp. 1-26
Date: 04/2007

Abstract

This paper provides a theoretical formalisation of the joint-venture contract, as an alternative to Foreign Direct Investment (FDI), within a Dissipation of Intangible Assets framework. In a two-period model, we discuss how the threat of knowledge spillover shapes the boundaries of a Multinational Enterprise. Similarly to the theoretical findings on the FDI-licensing trade off, we show that the integrated solution is more likely to emerge when know-how easily spills over - i.e. when firms are endowed with more Intangible Assets or they belong to high tech industries. Probit estimates, from a new firm-level dataset, show that Japanese manufacturing operations in Europe are in line with these predictions.

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