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 3: Heterogeneity and International Involvement

Davide Castellani and Antonello Zanfei


3.1 INTRODUCTION This chapter addresses one of the aspects of the issue of heterogeneity and internationalisation, that is the relationship between firm diversity and international involvement. The notion of international (or foreign) involvement has been used by Lall (1980) with reference to the choice between exports and direct investment of US manufacturing industries. Indeed, the same notion can be extended to comprise a wider set of strategies which firms can jointly or separately use to serve foreign markets, and/or to gain access to valuable assets available abroad. Besides exports and FDIs, these strategies include licensing and other agreements with foreign partners, the creation of networks of sales agents, and the setting up of commercialisation affiliates abroad. Bearing this notion in mind, in this chapter we address questions such as ‘How do firms differ in their choices of internationalisation strategies?’ and ‘How do they perform according to their degree of international involvement?’. Recent developments in trade theory have placed at centre stage the relationship between different modes of internationalisation and intraindustry heterogeneity. The key prediction emerging from this literature is that firms will resort to distinct international activities according to their productivity levels (Helpman et al. 2004). This interpretation has important, albeit not fully acknowledged, connections with a more consolidated view emerged in the theory of international production. Based on the seminal contributions of Hymer (1960), the latter stream of literature has developed a comprehensive analysis of the nature and determinants of ownership advantages, and of...

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