On Multinational Firms, Diffusion of Skills and Development

Alexander Monge-Naranjo

No 709, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: I study the implications for the development of a country hosting of multinational firms. The paper argues that despite the negative impact on existing local firms, the presence of foreign firms induce the emergence of a new sector of domestic firms and that in the long term, the country to converge to the income level of the developed (source) country. I study the equilibria of close and open economies and show that for a set of initial conditions, the only possibility for a country to develop is to open to multinational firms. Moreover, the model shows that openness to multinational firms eliminates the possibility that a country unilaterally falls back into underdevelopment. The paper also shows that entry of foreign firms may excessively impair the accumulation of productivity of existing domestic firms.

Keywords: Multinational Firms; Dynamic coalitions; Skill diffusion; Growth (search for similar items in EconPapers)
JEL-codes: F2 O1 O3 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:709

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