Kiel Working Papers, Kiel Institute for World Economics
No 1251:
Learning on the Quick and Cheap: Gains from Trade through Imported Expertise
James R. Markusen and Thomas F. Rutherford
Abstract: Gains from productivity and knowledge transmission arising
from the presence of foreign firms has received a good deal of empirical
attention, but micro-foundations for this mechanism are weak . Here we
focus on production by foreign experts who may train domestic unskilled
workers who work with them. Gains from training can in turn be decomposed
into two types: (a) obtaining knowledge and skills at a lower cost than if
they are self-taught at home, (b) producing domestic skilled workers
earlier in time than if they the domestic economy had to rediscover the
relevant knowledge through “reinventing the wheel”. We develop a
three-period model in which the economy initially has no skilled workers.
Workers can withdraw from the labor force for two periods of self study and
then produce as skilled workers in the third period. Alternatively, foreign
experts can be hired in period 1 and domestic unskilled labor working with
the experts become skilled in the second period. We analyze how production,
training, and welfare depend on two important parameters: the cost of
foreign experts and the learning (or “absorptive”) capacity of the domestic
economy.
Keywords: learning, transmission mechanism, multinationals, imported experetise; (follow links to similar papers)
JEL-Codes: F13,; F23; (follow links to similar papers)
36 pages, May 2005
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