Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 590: Reconciling the Evidence on the Knowledge Capital Model

Henrik Braconier, Pehr-Johan Norbäck () and Dieter Urban ()
Additional contact information
Henrik Braconier: National Institute of Economic Research, Postal: P.O. Box 3116, SE-103 62 Stockholm, Sweden
Pehr-Johan Norbäck: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Dieter Urban: Johannes Gutenberg - University of Mainz

Abstract: The Knowledge Capital Model (KC-model), described in Markusen (2002), encompasses both market size (horizontal) as well as factor endowment (vertical) explanations to why multinational production occurs. Although the KC-model seems intuitively appealing, the empirical support has, so far, been weak and even confused. In this study, we find strong, robust and consistent support for the KC-model. In contrast to previous studies, our skill measures follow directly from the model. We also use an enlarged dataset, where the date coverage is significantly improved. Our results also give estimated surfaces remarkably similar to theoretical simulations of the KC-model. In addition, the results give important insights into why previous studies have yielded such diverse results.

Keywords: Multinational Enterprise; Knowledge Capital Model; Vertical FDI

JEL-codes: F12; F23

Language: English

35 pages, January 31, 2003

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