Foreign Know-How, Firm Control, and the Income of Developing Countries

51 Pages Posted: 27 Jun 2007 Last revised: 23 Mar 2022

See all articles by Ariel T. Burstein

Ariel T. Burstein

University of California, Los Angeles (UCLA) - Department of Economics

Alexander Monge-Naranjo

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Date Written: May 2007

Abstract

Managerial know-how shapes the productivity of firms by defining the set of available technologies, production choices, and market opportunities. This know-how can be reallocated across countries as managers acquire control of factors of production abroad. In this paper, we construct a quantitative model of cross-country income differences to study the aggregate consequences of international mobility of managerial know-how. We use the model and aggregate data to infer the relative scarcity of this form of know-how for a sample of developing countries. We also conduct policy counterfactuals and find that on average, developing countries gain up to 23% in output and 9% in consumption when they eliminate all barriers to foreign control of domestic factors of production.

Suggested Citation

Burstein, Ariel T. and Monge-Naranjo, Alexander, Foreign Know-How, Firm Control, and the Income of Developing Countries (May 2007). NBER Working Paper No. w13073, Available at SSRN: https://ssrn.com/abstract=986923

Ariel T. Burstein (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Bunche Hall 8365
Los Angeles, CA 90095-1477
United States
310-206-6732 (Phone)
310-825-9528 (Fax)

Alexander Monge-Naranjo

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

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