International labor mobility and knowledge flow externalities
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International labor mobility and knowledge flow externalities Alexander Oettl1,2 and Ajay Agrawal1,3 1
Rotman School of Management, University of Toronto, Toronto, Canada; 2Max Planck Institute of Economics, Jena, Germany; 3National Bureau of Economic Research, Cambridge, MA, USA Correspondence: A Oettl, Rotman School of Management, University of Toronto, 105 St George Street, Toronto, ON, Canada M5S 3E6. Tel: þ 1 416 978 7019; Fax: þ 1 416 978 5433; E-mail: [email protected]
Abstract Although knowledge flows create value, the market often does not price them accordingly. We examine ‘‘unintended’’ knowledge flows that result from the cross-border movement of inventors (i.e., flows that result from the move, but do not go to the hiring firm). We find that the inventor’s new country gains from her arrival above and beyond the knowledge flow benefits enjoyed by the firm that recruited her (National Learning by Immigration). Furthermore, the firm that lost the inventor also gains by receiving increased knowledge flows from that individual’s new country and firm (Firm Learning from the Diaspora). Surprisingly, the latter effect is only twice as strong when the mover moves within the same multinational firm, suggesting that knowledge flows between inventors do not necessarily follow organizational boundaries, thus creating opportunities for public policy and firm strategy. Journal of International Business Studies (2008) 39, 1242–1260. doi:10.1057/palgrave.jibs.8400358 Keywords: labor mobility; knowledge flows; immigration; diaspora; inventors
Received: 6 September 2005 Revised: 30 May 2007 Accepted: 13 June 2007 Online publication date: 7 February 2008
INTRODUCTION Knowledge flows are economically important because they increase the efficiency of the innovation process. The recombination of knowledge drives innovation; thus wider access to knowledge facilitates more efficient innovation by reducing the need to re-create what already exists elsewhere. In fact, contemporary economic theory focuses on knowledge spillovers – knowledge flows that occur outside market mechanisms – as the central determinant of economic growth (Romer, 1986, 1990). Surprisingly, given the acknowledged importance of knowledge flows, we know very little about how they move through the economy and the mechanisms that influence flow patterns. However, we are reasonably certain about one feature of knowledge flow patterns: prior research shows, with reasonably conclusive empirical evidence, that such flows stay geographically localized (Agrawal & Cockburn, 2003; Almeida & Kogut, 1999; Audretsch & Feldman, 1996; Jaffe, Trajtenberg, & Henderson, 1993; Thompson & Fox-Kean, 2005). The localization finding is important for a number of reasons. First, it provides insight into general flow patterns; knowledge does not flow uniformly across geographic space. Second, the finding implies that knowledge does not flow freely across the marketplace; public policy and f
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