The Battle over Knowledge: Multinationals, Diffusion, and Governance

By Laura Alfaro, Maggie X. Chen and Beata S. Javorcik

Multinational corporations (MNCs) create and transfer knowledge across countries. Economists have focused on how these flows affect productivity and growth. Policymakers, however, increasingly emphasize a geopolitical externality: knowledge that strengthens a rival state's strategic capabilities imposes on the home country costs the transferring firm does not internalize. Distinguishing between codified, tacit, and organizational knowledge, which differ in transmission channels and governability, we examine how each is created within MNCs, diffused within and across firm boundaries, and restricted by policy. Restrictions have caused losses for domestic firms and provoked compensating responses, but evidence that they slowed rivals' technological progress remains scarce.