Learning on the Quick and Cheap: Gains from Trade Through Imported Expertise

38 Pages Posted: 9 Jul 2004 Last revised: 17 Feb 2015

See all articles by James R. Markusen

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Thomas F. Rutherford

Centre for Energy Policy and Economics

Multiple version iconThere are 4 versions of this paper

Date Written: July 2004

Abstract

Gains from productivity and knowledge transmission arising from the presence of foreign firms has received a good deal of empirical attention, but micro-foundations for this mechanism are weak . Here we focus on production by foreign experts who may train domestic unskilled workers who work with them. Gains from training can in turn be decomposed into two types: (a) obtaining knowledge and skills at a lower cost than if they are self-taught at home, (b) producing domestic skilled workers earlier in time than if they the domestic economy had to rediscover the relevant knowledge through reinventing the wheel'. We develop a three-period model in which the economy initially has no skilled workers. Workers can withdraw from the labor force for two periods of self study and then produce as skilled workers in the third period. Alternatively, foreign experts can be hired in period 1 and domestic unskilled labor working with the experts become skilled in the second period. We analyze how production, training, and welfare depend on two important parameters: the cost of foreign experts and the learning (or absorptive') capacity of the domestic economy.

Suggested Citation

Markusen, James R. and Rutherford, Thomas F., Learning on the Quick and Cheap: Gains from Trade Through Imported Expertise (July 2004). NBER Working Paper No. w10603. Available at SSRN: https://ssrn.com/abstract=563047

James R. Markusen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

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Thomas F. Rutherford

Centre for Energy Policy and Economics ( email )

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