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Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

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Abstract

This paper provides a theoretical formalization of the joint-venture contract, as an alternative to foreign direct investment (FDI), within a Dissipation of Intangible Assets (DIA) framework. In a two-period model, we discuss how the threat of knowledge spillover shapes the boundaries of a multinational enterprise (MNE). Similarly to the theoretical findings on the FDI-licensing trade-off, we show that the integrated solution is more likely to emerge when know-how easily spills over—i.e., when firms are endowed with more intangible assets or they belong to high-tech industries. Probit estimates, from a new firm-level data set, show that Japanese manufacturing operations in Europe are in line with these predictions.

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Authors and Affiliations

  1. Istituto di Economia Politica (ISESAO), Università Bocconi, Via Salasco 5, 20136, Milan, Italy

    Valeria Gattai

  2. Università degli Studi di Milano, Milan, Italy

    Corrado Molteni

Authors
  1. Valeria Gattai
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  2. Corrado Molteni
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Correspondence to Valeria Gattai.

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JEL no.

F23, C25, O5

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Gattai, V., Molteni, C. Dissipation of Knowledge and the Boundaries of the Multinational Enterprise. Rev. World Econ. 143, 1–26 (2007). https://doi.org/10.1007/s10290-007-0096-x

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  • DOI: https://doi.org/10.1007/s10290-007-0096-x

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