In this project, I study how economic development is shaped by cross-country knowledge flows via trade, foreign direct investment (FDI), and other channels. Using novel micro data for several Central and Eastern European (CEE) countries, I measure the quantitative importance of three channels: technical knowledge embodied in imported machinery, technical and organizational knowledge embodied in expatriate managers, and disembodied knowledge transfers taking place within multinational firms. I then analyze what impact foreign knowledge has on the firms and the workers of the host economy, and what are its implications for aggregate productivity and income inequality.
The project relies on several existing databases for Hungary and Romania, which will be complemented with newly purchased, collected and compiled data. The outcome of the project will be seven research studies and a collection of firm-level data sets covering CEE countries, including a large cross-country firm survey on the local supplier linkages of multinational companies.
My proposed project improves upon the state of the art in four ways. First, as a comprehensive study using novel micro data, it uncovers new facts about the relative importance of the channels of knowledge flows. Second, it improves the identification of causal effects relative to existing studies by exploiting the detailed micro data. Third, it uses the micro estimates to quantify the aggregate impact of foreign knowledge on the economy. Fourth, it discusses how foreign knowledge affects different firms and workers differently, and, more specifically, how it may contribute to income inequality.
More broadly, the research findings help evaluate the relative efficacy of trade, FDI, and immigration policies in promoting economic growth and can inform theories about the channels and barriers of productivity convergence.