American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Gravity of Knowledge
American Economic Review
vol. 103,
no. 4, June 2013
(pp. 1414–44)
Abstract
We analyze the international operations of multinational firms to measure the spatial barriers to transferring knowledge. We model firms that can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). The model shows how knowledge transfer costs can be inferred from multinationals' operations. We use firm-level data on the trade and sales of US multinationals to confirm the model's predictions. Disembodied knowledge transfer costs not only make the standard multinational firm model consistent with the fact that affiliate sales fall in distance but quantitatively accounts for much of the gravity in multinational activity.Citation
Keller, Wolfgang, and Stephen Ross Yeaple. 2013. "The Gravity of Knowledge." American Economic Review, 103 (4): 1414–44. DOI: 10.1257/aer.103.4.1414Additional Materials
JEL Classification
- F12 Models of Trade with Imperfect Competition and Scale Economies
- F14 Empirical Studies of Trade
- F23 Multinational Firms; International Business
- L25 Firm Performance: Size, Diversification, and Scope
- O33 Technological Change: Choices and Consequences; Diffusion Processes