The transfer of knowledge across countries.

• Author: Keller, Wolfgang

How does knowledge flow between firms in different countries? Without any doubt there are firms with vastly different capabilities, or knowledge, operating in the world today. These firm-level differences lead to aggregate effects in terms of production, trade, and income across countries. Knowledge does not seem to have an automatic tendency to flow from one country to another, quickly leading to equalization across locations. Can firms actually facilitate, or prevent, international knowledge transfers? While some knowledge transfers are between business partners, others are not, and such unintended knowledge transfers to other firms are externalities (called spillovers). One well-known fact is that knowledge is geographically localized. (1) Localization, it turns out, is a natural outcome when knowledge is difficult to describe in a self-contained way. In this setting, knowledge transfers require the movement of people, and localization arises simply because there are costs of moving people in geographic space.

More generally, in recent research with several coauthors I examine the idea that knowledge transfers can be linked to the economic engagement of firms and people across countries. I analyze the relationship between knowledge flows and international business travel, the role of both multinational firms and trade, and a theoretical framework that focuses on the different ways in which knowledge flows.

Innovation and International Business Travel

When does the need for in-person contacts arise? There are several possibilities. Take the corporate downsizer played by George Clooney in the 2009 movie "Up in the Air"; his job is it to fire people in person. Or, take the common belief among corporate executives that in-person contacts are far more effective than anything else for closing business deals. (2) These in-person contacts are cost-effective because they have an element of non-codifiability (that is, they cannot be subject to programmed rules), be it to show appreciation for past work, or to establish trust, that cannot simply be had from a letter or phone call.

Non-modifiability's may play a particularly important role in the transfer of new knowledge, the kind of knowledge that is needed to engage in innovation, and in that case, it may be best to demonstrate and explain the knowledge face-to-face. (3) In work with Nune Hovhannisyan, I evaluate the idea that international business travel may affect the rate of innovation across countries. (4)

Empirical research on international service trade is still relatively rare, not only because services are often highly differentiated (so difficult to aggregate) but also because there is not yet much comparable information across countries. Specifically, in the case of air travel there is typically no information on whether the purpose of travel is business or non-business; much of the information, in fact, is collected by national tourism agencies. Data employed in our study is both unusually rich and consistent. We have information on more than 100,000 trips between the years 1993 and 2003, including whether the purpose of travel was business or not. All trips are from the United States to 36 other countries, both rich and poor. We do not know the identity of the traveler...