Gravity in the Weightless Economy
58 Pages Posted: 11 Jan 2010
There are 2 versions of this paper
The Gravity of Knowledge
Date Written: November 2009
Abstract
This paper studies the international mobility of technology through the lens of multinational firms. We show that gravity applies to the activity of multinational firms, and the strength of gravity is greatest in technologically-complex, research and development intensive industries. To explain gravity in the weightless economy, we develop a model in which a multinational's production can be fragmented into intermediates that vary in the codifiability of their technology. Poorly codified technology requires face-to-face communication to transfer accurately, leading to production inefficiencies that can be avoided if an affiliate instead imports intermediates embodying this technology from its parent firm. Because intermediate input trade incurs shipping costs, affiliates' sales are subject to the force of gravity, and this force is strongest in technologically complex industries. An additional implication of this mechanism is that affiliates are more constrained in their ability to substitute local production for intermediate imports in technologically complex industries. We confirm these predictions and show that trade costs increase the average technological complexity of intra-firm trade. Our analysis offers a new perspective on the mobility of technology, which is a topic crucial to a wide range of fields in economics.
Keywords: communication, foreign direct investment, intra-firm trade, Multinational firms, noncodified knowledge, offshoring, technology transfer, vertical production sharing
JEL Classification: F1, F2, O23
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Trade, Multinational Production, and the Gains from Openness
-
Firm Heterogeneity and the Structure of U.S. Multinational Activity: An Empirical Analysis
-
The Margins of Multinational Production and the Roleof Intra-Firm Trade
By Alfonso A. Irarrazabal, Andreas Moxnes, ...
-
Global Production and Trade in the Knowledge Economy
By Wolfgang Keller and Stephen R. Yeaple
-
Global Production and Trade in the Knowledge Economy
By Wolfgang Keller and Stephen R. Yeaple
-
Global Production and Trade in the Knowledge Economy
By Wolfgang Keller and Stephen R. Yeaple
-
By Wolfgang Keller and Stephen R. Yeaple
-
Between Diffusion and Distinctiveness in Globalization: U.S. Law Firms Go Glocal
By Carole Silver, Nicole De Bruin Phelan, ...
-
By Lilac Nachum, Marina Carnevale, ...
Gravity in the Weightless Economy
This is a CEPR Discussion Paper. CEPR charges a fee of $8.00 for this paper.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.
