In particular Mexican plant level data reveals that plants with higher

In particular mexican plant level data reveals that

This preview shows page 119 - 121 out of 136 pages.

In particular, Mexican plant level data reveals that plants with higher productivity and higher export orientation are more likely to rely on expatriates. We also show that plants relying on foreign expatriates are more likely to engage in technology transfer, and more so in R&D in- tensive industries. The magnitude of these results suggests that foreign expatriates may be a big determinant of the technology transfer from the parent MNCs to their subsidiaries. Further, using data on lawyers’ perception about the judicial efficiency of each Mexican state collected by ITAM/GMA (1999) as measure of average local inefficiency we find that judicial efficiency reduces the likelihood on employing expatriates in the regime with low level of judicial quality while the opposite is true in high level judicial quality regime. This is consistent with the U-shape relation between local uncertainty and expatriates predicted in the theory. Finally, regarding FDI entry and composition, we find that an increase in judicial quality is associated with more entry of foreign firms, while these are more likely to be low-tech. The current analysis has important policy implications for developing countries. For example, regarding human capital policies, our theoretical analysis shows the disparity of consequences from promoting primary schooling versus promoting top management education. While the latter allows these countries to develop a pool of local managers, potentially hired by multinationals, it also makes it profitable for low tech multinationals to enter. We plan to investigate, both theoretically and empirically, the impact of these quantity-composition biases of FDI for economic development in our future work. Regarding visa policies, our analysis shows that restrictive visa policies may come at the cost of lower technology transfers from abroad, since expatriates are 39
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found to be a key channel behind those transfers. Regarding future work, at the empirical level, addressing the causal impact of expatriates is next. At the theoretical level, investigating further the impact of expatriates on local development by incorporating the amount and nature of spillovers from multinational companies to local firms is a natural extension. A Appendix A.1 Information Transmission and Incentives to Fool Workers 48 Recall that a fraction (1 η ) of team’s output is shared evenly among members of the transfer team. Consequently the utility of worker j in the transfer stage is: θ J 1 η ( e j + m ̸ = j e m ) 1 2 e 2 j (19) Let θ E ( µ ) be the expected value of θ given p H = µ . The best response of a given workers to θ E ( µ ) is e BR = θ E ( µ ) J 1 η (20) Let r ( µ ) = ( J 1) e BR = J 1 J 1 - η θ E ( µ ) be the collective reaction of the workers in the transfer team. Given r ( µ ) the CEO utility is equal to θ i J 1 η ( e + r ( µ )) 1 2 e 2 (21) Regardless of the realization of θ i , the expatriate CEO utility is increasing in r ( µ ). Con- sequently, he has incentives to fool workers and announce ˆ θ = θ H regardless of the truth.
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