The gravity model predicts that international trade and FDI should fade with geographic distance. The negative effect of distance is justified by the existence of transport costs which hamper the international exchange of final and intermediate goods, and by higher uncertainty about local markets. We submit that distance plays a remarkably different role in the case of R&D FDIs since they mainly involve the international transfer, absorption and use of knowledge. Using data on bilateral investment projects in R&D, manufacturing and other business activities between 58 countries, we find that geographic distance does not hinder R&D FDIs as much as in the case of production and other investment activities. Furthermore, once we control for institutional and psychic distance, in particular language and religious differences, the negative effect of geographic distance vanishes.

JEL: F23, O33

This paper builds on appreciative theorizing that has emerged in the literature over the past decade, according to which the multinational firm (MNF) can be identified as a “double network” integrating its national and foreign subsidiaries, namely the “internal network”, with a set of contractual agreements and linkages developed with other institutions, that is the “external network”. It is argued that this view has important implications, as it shifts attention away from the MNF as such, and focuses instead on local and cross-border relationships through which international production is organised. Based on this approach we highlight some elements for a theory of MNF evolution. In a nutshell, MNF change reflects a specific characteristic of multinational activities, that is firms’ involvement into networks connecting a variety of national and foreign systems of production. Each of these systems affects, and is affected by, multinational expansion through the creation, transmission, contamination and enrichment of knowledge. However, the adoption of such a theoretical framework raises several analytical problems. First, as MNFs are structured as a double network, the impact of choices made by a single node become relatively less important. The analysis thus needs to encompass a wider set of decision making centers and must consider actual and potential moves of units well beyond the boundaries of individual firms. Second, new governance modes emerge, undermining the traditional way of theorising the distinction between markets and hierarchy, raising the issue of who controls whom, and inducing us to reflect on the very definition of international production.

It is argued that a new actor is emerging in international business, namely “Social Multinationals”, that is a blend of international rent-creation and pursuit of social objectives. However, it would be misleading to state that the emergence of Social Multinationals will be the natural outcome of a market driven process. Too much is left to the understanding and sensitiveness of individual entrepreneurs. Signals of the emergence of this new and promising breed are still very weak. Important institutional innovations will have to be enacted to favour its strengthening and growth.

JEL classification: F23, L26, M14

Using firm level data on the Italian manufacturing industry, we examine how trade activities are related to workforce composition and wages. We contribute to empirical research on these issues in three ways. First, we provide new evidence that is consistent with multi-attribute models on firm heterogeneity and trade. We show that even after controlling for various company characteristics, including size and capital intensity, exporters still pay higher wages and employ more skilled workers than non-exporters. Second, we consider engagement in international transactions, either by means of exports, imports or a combination of the two. We show that failing to control for importing activities may bias upward export premia. Third, we look at how the wage and the employment structures of trading firms change with the country of destination and origin of trade flows. We find that wage and skill premia are influenced by the characteristics of partner countries.

JEL Classification Numbers: F10, F16, J21

Using data from 1176 Italian municipalities in 2005, we identify factors associated with the development of e-government services supplied by local public administrations (PAs). We show that the combination of internal competencies and context-specific factors is different when explaining decisions to start e-government activities vs. the intensity of such activities. Municipalities involved in e-government are larger, carry out more in-house ICT activities and are more likely to have intranet infrastructures than PAs that do not offer front-office digitized services. They are also generally located in regions having relatively large shares of firms using or producing ICTs, where many other municipalities offer digitized services, and where population density is relatively low. The range and quality of e-government services supplied by local PAs tend to increase with their stock of ICT competencies, their efforts to train workers, and with their ability to organise efficient interfaces with end-users. Moreover, there is a correlation between the range and quality of e-government services offered and the broadband infrastructure development in the area where local PAs are located.

JEL classification: H830, 0330, O380

Using data on 5,102 subsidiaries established in the period 1991-1999, we examine the location choice of multinational firms of different nationalities in 47 regions of 5 EU countries. In particular, we estimate a nested logit model and find that European multinationals consider regions across different countries as relatively closer substitutes than regions within national borders. This is consistent with the hypothesis that European regions compete to attract FDIs relatively more across than within countries. However, in line with previous studies, we also find that national boundaries still play some role in choices made by non-European multinationals.

JEL Classification: F23, O52, R30

This paper combines insights from different streams of literature to develop a more comprehensive framework for the analysis of knowledge transfer via value chain relationships.We integrate the existing literature in three ways. First,we consider value chain relationships as a multi-facet process of interaction between buyers and suppliers, involving different modes of knowledge transmission and development. Second,we assess whether and to what extent value chain relationships are associated with the presence of multinationals and with their embeddedness in the host economy. Third, we take into account the capabilities of local firms to handle the technology as a factor influencing knowledge transfer through value chain relationships. Using data on 1385 firms active in Thailand in 2001–2003,we apply a multinomial logit model to test how the nature and intensity of multinational presence and the competencies of local firms affect the organization of international knowledge transfer.We find that knowledge intensive relationships, which are characterized by a significant transmission of technical and organizational competencies along the value chains, are positively associated with the presence of global buyers in the local

market, with the efforts ofMNCs to adapt technology to local contexts, and with the technical capabilities of domestic firms. By contrast, the age of subsidiaries and the share of inputs purchased locally appear to increase the likelihood of value chain relationships with a lower technological profile.

JEL classification: F10, F23, O33

We use comparable micro level panel data for 14 countries and a set of identically specified empirical models to investigate the relationship between exports and productivity. Our overall results are in line with the big picture that is by now familiar from the literature: Exporters are more productive than non-exporters when observed and unobserved heterogeneity are controlled for, and these exporter productivity premia tend to increase with the share of exports in total sales; there is strong evidence in favour of self-selection of more productive firms into export markets, but nearly no evidence in favour of the learning-by-exporting hypothesis. We document that the exporter premia differ considerably across countries in identically specified empirical models. In a meta-analysis of our results we find that countries that are more open and have more effective government report higher productivity premia. However, the level of development per se does not appear to be an explanation for the observed cross-country differences.

JEL classification: F14, D21

THE INTERNATIONAL STUDY GROUP ON EXPORTS AND PRODUCTIVITY consists of teams working with firm (establishment or enterprise) level data from 14 countries. Substantial contributions to the results reported in this paper were made by the following members of the teams:

Austria (Leonhard Pertl, Stefano Schiavo),

Belgium (Mirabelle Muuls, Mauro Pisu),

Chile (Roberto Álvarez, Patricio Jaramillo, Ricardo A. López

China (Johannes Van Biesebroeck, Loren Brandt, Yifan Zhang),

Colombia (Ana M. Fernandes, Alberto Isgut),

Denmark (Rasmus Jørgensen, Ulrich Kaiser),

France (Flora Bellone, Liza Jabbour, Patrick Musso, Lionel Nesta),

Germany (Helmut Fryges, Joachim Wagner),

Italy (Davide Castellani, Francesco Serti begin_of_the_skype_highlighting end_of_the_skype_highlighting, Chiara Tomasi, Antonello Zanfei),

Republic of Ireland (Stefanie Haller, Frances Ruane),

Slovenia (Joze P. Damijan, Crt Kostevc, Saso Polanec),

Spain (Jose C. Fariñas, Liza Jabbour, Juan A. Máñez, Ana Martin, Maria E. Rochina, Juan A. Sanchis),

Sweden (Martin Andersson, Sara Johansson),

United Kingdom (David Greenaway, Richard Kneller, Mauro Pisu).

Ana Fernandes, Holger Görg and Alberto Isgut contributed to the meta-analysis.

Joachim Wagner (wagner@uni-lueneburg.de) co-ordinates the group and serves as the corresponding author for this international comparison paper.

This paper examines the changing role of multinationals in the global generation, adoption and transfer of innovation. It is argued that the combination of traditional asset exploiting objectives with increasing asset seeking activities entails a transition of multinationals towards a double network structure. On the one hand multinationals are more and more characterised by the interconnection of a large number of internal units that are deeply involved in the company’s use, generation and absorption of knowledge. On the other hand, units belonging to the internal network tend to develop external networks with other firms and institutions that are located outside the boundaries of the multinational firm, in order to increase the potential for use, generation and absorption of knowledge. Extending the analysis to a more general level, it is suggested that each of the external actors with which multinationals are interconnected across countries are themselves involved in extensive webs of relationships with other firms and institutions. By becoming embedded in different local contexts, multinational firms act as bridging institutions connecting a number of geographically dispersed economic and innovation systems. As a result, they are conditioned by, and contribute to, the evolution of different contexts in which they operate.

It is suggested that a transition is taking place towards new modes of organising transnational

corporations’ innovative activities. First, different units of multinational

firms, including foreign-based subsidiaries, are increasingly involved in the generation,

use and transmission of knowledge. Secondly, multinationals are developing

external networks of relationships with local counterparts, through which foreign

affiliates gain access to external knowledge sources and application abilities. As a

result of this evolutionary process, multinationals’ organisation is subject to both

centripetal and centrifugal forces. Considerable efforts are then necessary to innovate

coordination procedures and mechanisms, in order to enhance the generation,

circulation and use of knowledge. A number of empirical works are reviewed, providing

some evidence of the evolutionary process discussed in the paper.

JEL classifications: F23, L22, O33

Using evidence from a novel data-set on international operations in which the world’s largest

electronics and chemical corporations were involved in 1993-97, this paper examines how

multinational experience affects inter-firm linkage creation. Remarkable similarities and

differences emerge across industries in this respect. On the one hand, specific multinational

experience, measured by the extent and nature of a firm’s presence in a given country, appears

to positively impact on commitment intensive international operations, such as mergers and

acquisitions, in both electronics and chemical industries. This result is consistent with a

“knowledge based view” of the firm, combined with a "dynamic transaction cost" approach.

On the other hand, generic multinational experience, measured by the extent and nature of a

firm’s global operations, positively affects the creation of more “exploratory”, non-equity

linkages, in the electronics industry and not in the chemical industry. We speculate that the

different impact of generic experience on linkage creation in the case of electronics vs.

chemical firms is due to a number of structural diversities which affect the process of

knowledge absorption and exploitation in the two industries. Implications are drawn for

public technology policies and for measures concerning the promotion and selection of

inward foreign direct investments in the examined industries.

JEL classification: F23, L22, O33

This paper summarises the contributions given by several authors on the issues related to International Production and its effects on economic performances within the “Assessing the Impact of Technology and Globalisation” (AITEG) research project promoted by the Directorate General Research of the European Commission. The project involves units from the United Kingdom, Spain, Norway, Sweden and Italy. The purpose is to provide a synthetic overview and a common background which might help the discussion of results and of policy implications both for the participant to the project, and for scholars and non technical audience interested in these issues. The survey is organised into 3 section. The first one outlines the main findings of papers which were primarily focused on the role played by multinational enterprises in the evolution of host economies. The second one refers to works examining the process through which internationalisation generates new knowledge and competitive advantages. The third section reviews contributions on the interactions between regions (and other sub-national units) and internationalisation processes.

Using a balanced panel of firm-level data on the manufacturing industry in France, Italy and Spain over the

1992–1997 period, this paper examines the impact of foreign presence on the productivity of domestic enterprises. We find positive and significant externalities on Italian firms, negative impact on Spanish firms, and non-significant effects on French firms. A generalisation of the results obtained for individual countries is attempted by introducing productivity gaps between foreign and domestic firms, and absorptive capacity of domestic firms. It

is shown that high gaps tend to favour positive effects of FDI, while absorptive capacity, measured by local firms’

average productivity levels, does not leverage productivity spillovers from FDI. This would confirm the ‘‘catching up’’ hypothesis, which identifies a positive relation between the size of technological gaps and growth opportunities induced by foreign investments, and would contradict the ‘‘technological accumulation’’ hypothesis, which stresses the role of domestic absorptive capacity and of coherence between foreign and domestic technology as determinants of virtuous effects of inward investments.

JEL: F23, L23

This paper examines how different aspects of multinational experience affect the choice of international linkage strategy. Integrating transaction cost and dynamic efficiency considerations, we empirically test the determinants of the choice between acquisitions, joint ventures, and strategic alliances for the world’s largest electronics corporations in 1993-1997. We show that “country specific experience” increases the probability of commitment-intensive linkage modes. We also find a positive effect on strategic alliances caused by “variety experience”, deriving from the heterogeneity of international contexts, and by “internationalisation experience” reflecting overall involvement in international markets on strategic alliances.

JEL classification: F23, L22, O33

The paper focuses on a specific aspect of globalisation, namely the growing role of transnational corporations in the international organisation of production and innovation. It will be argued that the nature and characteristics of international production are changing and new opportunities for technological spillovers to host economies are associated to this change. However the available evidence on the actual economic impact of multinational expansion is shaky and contradictory. This seems to have led to a sort of deadlock in the current debate, which is much too often blocked in a sterile juxtaposition between pro-global and anti-global views based on rather weak empirical grounds. The fact that there is limited uncontroversial evidence of positive effects of international production may have to do with the lack of institutional tools available to govern the globalisation process. In other words, what is missing is a set of negotiated rules and institutions enabling the economies involved in international production activities to capture and share the potential benefits associated to it. From this perspective, the paper singles out the areas wherein new institutions are needed, and provides a few insights on some of the issues these institutions should address

This paper addresses the issue of intra-industry heterogeneity and internationalisation. We show that, after controlling for sector, location, firm age and size, Italian manufacturing companies exhibit different economic and innovative performance according to their involvement in foreign activities. In particular, exporters show intermediate innovative performance between non-internationalised firms and those carrying out foreign production. Multinationals with a lower commitment to foreign markets, i.e. with non manufacturing activities abroad only, exhibit a higher productivity than exporters but they do not appear to innovate more than the latter. Heterogeneity in productivity is robust to controlling for innovation inputs and outputs, suggesting that the difference in economic performance cannot be entirely attributed to different innovative activities, and that the involvement in international operations can be a distinct channel of knowledge accumulation. JEL codes: F10, F23, O33

How are trade activities related to firms’ employment and wages structures? Using firm level data on Italian manufacturing firms, we look at the relationship between the degree involvement in international trade and workforce composition and wages. This paper adds to the existing literature in two ways. Firstly, we dierentiate firms that only export from firms that only import and from those involved in both trading activities - namely two-way traders. We show that two- way traders have a higher propensity to employ non-production workers, exhibit significant wage gaps, but also pay higher wages for both production and non production workers, relative to non internationalized firms and to firms which are involved only in either export or import. Secondly, the paper also looks at how the wage and employment structure of trading firms changes with the country of destination and origin of trade flows. JEL codes: F10, F16, J21