The Organization of Knowledge in Multinational Firms

64 Pages Posted: 25 Jun 2015

See all articles by Anna Gumpert

Anna Gumpert

Ludwig Maximilian University of Munich (LMU); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

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Date Written: June 24, 2015

Abstract

This paper provides the first in-depth study of the organization of knowledge in multinational firms. The paper develops a theoretical model that studies how firms optimally split knowledge between their headquarters and their production plants if communication costs impede the access of production plants to headquarter knowledge. The paper assumes that the foreign plants of multinational firms face higher communication costs with headquarters than their domestic plants, and shows that multinational firms therefore systematically assign more knowledge to both their foreign and domestic plants than non-multinationals. This helps explain why multinational firms pay higher wages to their production workers than non-multinational firms, and why their sales and their investment probability decrease across space. Empirical evidence from data on corporate transferees confirms the model predictions for multinationals’ organization of knowledge. Data on German multinational firms corroborate the implications of the model in relation to the geography of multinationals’ sales and investments.

Keywords: multinational firm, knowledge hierarchy, organization, geography of FDI, multinational wage premium, corporate transferees

JEL Classification: D210, D240, F210, F230

Suggested Citation

Gumpert, Anna, The Organization of Knowledge in Multinational Firms (June 24, 2015). CESifo Working Paper Series No. 5401. Available at SSRN: https://ssrn.com/abstract=2622415

Anna Gumpert (Contact Author)

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, Bavaria 80539
Germany

HOME PAGE: http://www.en.compecon.econ.uni-muenchen.de/staff/postdocs/gumpert/index.html

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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