Review of World Economics, Vol. 143, No. 1, 2007

Articles

Valeria Gattai and Corrado Molteni. Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

Michael W. Nicholson. The Impact of Industry Characteristics and IPR Policy on Foreign Direct Investment

Alireza Naghavi. Strategic Intellectual Property Rights Policy and North-South Technology Transfer

David B. Audretsch and Dirk Dohse. Location: A Neglected Determinant of Firm Growth

Kym Anderson and Ernesto Valenzuela. Do Global Trade Distortions Still Harm Developing Country Farmers?

Christian Volpe Martincus and Andrea Molinari. Regional Business Cycles and National Economic Borders:What Are the Effects of Trade in Developing Countries?

Nicholas Apergis, Ioannis Filippidis, and Claire Economidou. Financial Deepening and Economic Growth Linkages: A Panel Data Analysis

Abstracts

Valeria Gattai and Corrado Molteni
Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

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.

Keywords: Dissipation; intangible assets; FDI; joint venture; internalization; Japan
JEL no. F23, C25, O5

Michael W. Nicholson
The Impact of Industry Characteristics and IPR Policy on Foreign Direct Investment

Abstract: This paper investigates the interaction of industry characteristics and intellectual property rights (IPRs) on multinational firm behavior. The results suggest that firms in industries with high capital costs are more likely to maintain control over production knowledge in countries with less intellectual property protection by engaging in foreign direct investment (FDI). Moreover, when IPRs are strong, firms in industries with high investment in research and development (R&D) are more likely to enter a market by licensing to an unaffiliated host firm.

Keywords: Technology transfer; foreign direct investment; licensing; intellectual property rights
JEL no. F23, C25, O34

Alireza Naghavi
Strategic Intellectual Property Rights Policy and North-South Technology Transfer

Abstract: This paper analyzes welfare implications of protecting intellectual property rights (IPR) in the framework of TRIPS for developing countries (South) through its impact on innovation, market structure and technology transfer. In a North-South trade environment, the South sets its IPR policy strategically to manipulate multinationals' decisions on innovation and location. Firms can protect their technology by exporting or risk spillovers by undertaking FDI to avoid tariffs. A stringent IPR regime is always optimal for the South as it triggers technology transfer by inducing FDI in less R&D-intensive industries and stimulates innovation by pushing multinationals to deter entry in high-technology sectors.

Keywords: Intellectual property rights; technology transfer; multinational firms; foreign direct investment; North-South trade
JEL no. O34, F23, F13, L13, O32, L11, O38

David B. Audretsch and Dirk Dohse
Location: A Neglected Determinant of Firm Growth

Abstract: This paper links the performance of new technology firms, measured in terms of employment growth, to geographic location. We introduce a model of firm growth that is specific to characteristics of the location as well as the firm and industry. The model is estimated using a unique data set identifying the growth performance of small technology-based firms in Germany. We find that firm performance, as measured by employment growth, does appear to be influenced by locational characteristics as well as characteristics specific to the firm and the industry. In particular, the empirical evidence suggests that being located in an agglomeration rich in knowledge resources is more conducive to firm growth than being located in a region that is less endowed with knowledge resources. These results suggest the economic value of location as a conduit for accessing external knowledge resources, which in turn, manifests itself in higher rates of growth.

Keywords: Agglomeration; knowledge resources; firm growth
JEL no. L10, R11, O12, O30

Kym Anderson and Ernesto Valenzuela
Do Global Trade Distortions Still Harm Developing Country Farmers?

Abstract: We estimate the impact of global merchandise trade distortions and services regulations on agricultural value added in various countries. Using the latest versions of the GTAP database and the GTAP-AGR model of the global economy, our results suggest real net farm incomes would rise in developing countries with a move to free trade, thereby alleviating rural poverty---despite a terms of trade deterioration for some developing countries that are net food importers or are enjoying preferential access to agricultural markets of high-income countries. We also show, for several large developing countries, the contribution of their own versus other countries' trade policies.

Keywords: Trade policy reform; CGE modeling; agricultural markets; economic welfare
JEL no. C68, D58, F17, Q17

Christian Volpe Martincus and Andrea Molinari
Regional Business Cycles and National Economic Borders: What Are the Effects of Trade in Developing Countries?

Abstract: Using regional gross product data for Argentina and Brazil over the period 1961--2000, we find that business cycle synchronization within countries is substantially larger than across them. Factors such as monetary policy and large country-specific shocks play a significant role in explaining this observed border effect. Furthermore, our GMM single and multiple equation estimates based on Brazilian states and Argentinean national data provide indicative evidence that the higher level of trade among regions within a country is an important factor that accounts for differences in output correlations across countries.

Keywords: Trade; regions; business cycles; border; Argentina; Brazil
JEL no. F15, F42, E32, R11

Nicholas Apergis, Ioannis Filippidis, and Claire Economidou
Financial Deepening and Economic Growth Linkages: A Panel Data Analysis

Abstract: The paper examines whether a long-run relationship between financial development and economic growth exists employing panel integration and cointegration techniques for a dynamic heterogeneous panel of 15 OECD and 50 non-OECD countries over the period 1975--2000. Three different measures of financial deepening are used to capture the variety of different channels through which financial development can affect growth. Our findings support the existence of a single long-run equilibrium relation between financial deepening, economic growth and a set of control variables. Further, the evidence points to a bi-directional causality between financial deepening and growth.

Keywords: Financial development; growth; panel cointegration; panel causality
JEL no. O11, O16, C33