Multinational Firms, Innovation and Productivity
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Multinational Firms, Innovation and Productivity

Davide Castellani and Antonello Zanfei

This book gets to the root of how and why multinational firms differ in the cross-border creation, transfer and diffusion of technology, and provides fresh evidence on the effects that these differences have on productivity and innovation in the economic systems in which they are active.
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Chapter 5: Multinational Firms and Spillovers: Theoretical, Methodological, and Empirical Issues

Davide Castellani and Antonello Zanfei


5. Multinational firms and spillovers: theoretical, methodological and empirical issues 5.1 INTRODUCTION In Part II of this book we highlighted the fact that multinational firms tend to be different from non-multinational firms, both in the home and the host countries. In particular we saw that affiliates of foreign multinationals and firms belonging to domestic multinational groups are larger, exhibit higher productivity, and have a higher propensity for innovation, for carrying out R&D and for engaging in technological cooperation. This has a direct effect on the home and host countries where they operate: average productivity and innovation in a given country increase as the share of activities due to multinationals in the economy rises. This has to do with the fact that multinational firms bring in a bundle of assets which might not be available locally, such as technologies, market and employment opportunities, capital, and management skills (Barba Navaretti and Venables 2004). This kind of direct effect might be relevant per se, justifying, for example, a significant increase in public incentives to attract foreign multinationals which we have witnessed in the last decades both in developed and developing countries (Hanson 2001). However, multinationals also determine significant pecuniary and technological externalities affecting the behaviour and performance of other domestic firms. This occurs through various channels such as: competition, imitation and demonstration, worker mobility and spin-offs, backward and forward linkages, and other forms of inter-firm cooperation (Blomström and Kokko 1998). In this...

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