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American Economic Review: Vol. 103 No. 4 (June 2013)

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The Gravity of Knowledge

Article Citation

Keller, Wolfgang, and Stephen Ross Yeaple. 2013. "The Gravity of Knowledge." American Economic Review, 103(4): 1414-44.

DOI: 10.1257/aer.103.4.1414

Abstract

We analyze the international operations of multinational firms to measure the spatial barriers to transferring knowledge. We model firms that can transfer bits of knowledge to their foreign affiliates in either embodied (traded intermediates) or disembodied form (direct communication). The model shows how knowledge transfer costs can be inferred from multinationals’ operations. We use firm-level data on the trade and sales of US multinationals to confirm the model’s predictions. Disembodied knowledge transfer costs not only make the standard multinational firm model consistent with the fact that affiliate sales fall in distance but quantitatively accounts for much of the gravity in multinational activity.

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Online Appendix (430.29 KB) | Download Data Set (307.59 KB) | Author Disclosure Statement(s) (53.22 KB)

Authors

Keller, Wolfgang (U CO)
Yeaple, Stephen Ross (PA State U)

JEL Classifications

F12: Models of Trade with Imperfect Competition and Scale Economies
F14: Empirical Studies of Trade
F23: Multinational Firms; International Business
L25: Firm Performance: Size, Diversification, and Scope
O33: Technological Change: Choices and Consequences; Diffusion Processes


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