DP2194 Foreign Direct Investment and Spillovers through Workers' Mobility

Author(s): Andrea Fosfuri, Massimo Motta, Thomas Rønde
Publication Date: August 1999
Keyword(s): Externalities, Labour Mobility, Multinational Corporations, Spillovers, Training
JEL(s): F23, J63, O12
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2194

We analyze a model where a multinational firm can use a superior technology in a foreign subsidiary only after training a local worker. Technological spillovers from foreign direct investment arise when this worker is later hired by a local firm. Pecuniary spillovers arise when the foreign affiliate pays the trained worker a higher wage to prevent her from moving to a local competitor. We study conditions under which these spillovers occur. We also show that the multinational firm might find it optimal to export instead of investing abroad to avoid dissipation of its intangible assets or the payment of a higher wage to the trained worker.