To what extent do barriers to knowledge transmission influence a firm’s decision to expand? Using a worldwide dataset on foreign subsidiaries, I show that multinational corporations are, on average, about 12% less likely to horizontally expand a sector that is one standard deviation above the mean in the knowledge intensity scale. Evidence shows that when firms do expand their knowledge-intensive activities they tend to do so at shorter geographic distances. Locating a foreign subsidiary in the same time zone as its headquarters tends to reduce barriers to knowledge transmission by easing communication and effectively reducing the distance between them by, on average, 3500 Km. The empirical results can be explained through an expansion of the theoretical framework developed by Helpman, Melitz and Yeaple (2004). The new model incorporates the cost of knowledge transmission for firms engaged in foreign direct investment, which affects the mechanisms of the proximity-concentration hypothesis.
bahar_jmp_final.pdfTo what extent are migrants a source of evolution of the comparative advantage of both their sending and receiving countries? We study the drivers of knowledge diffusion by looking at the dynamics of the export basket of countries. The main finding is that migration is a strong and robust driver of productive knowledge diffusion. In terms of their ability to induce exports, we find that an increase of only 65,000 people in the stock of migrants for the average country, is associated with about 15% increase in the likelihood of adding a new product to a country's export basket. We also find that, in terms of expanding the export basket of countries, a migrant is worth about US $30,000 of foreign direct investment. For skilled migrants these same figures become 15,000 people and US $160,000. In order to alleviate endogeneity concerns, we present results based on instrumenting for migration stocks using bilateral geographic and cultural variables.
br_migration.pdf