The Gravity of Knowledge

62 Pages Posted: 17 Nov 2009 Last revised: 25 Apr 2010

See all articles by Wolfgang Keller

Wolfgang Keller

University of Colorado; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

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Date Written: November 2009

Abstract

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.

Suggested Citation

Keller, Wolfgang and Yeaple, Stephen R., The Gravity of Knowledge (November 2009). NBER Working Paper No. w15509. Available at SSRN: https://ssrn.com/abstract=1505832

Wolfgang Keller (Contact Author)

University of Colorado ( email )

Department of Economics
PO Box 256
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
8148655452 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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