Multinationals, Competition and Productivity Spillovers through Worker Mobility

Spillovers can arise when multinational firms (MNEs) train local employees who later join domestic firms, bringing with them part of the technological, marketing and managerial knowledge they have acquired. Fosfuri et al. (2001) suggest that the direction and the intensity of the worker mobility, and its associated spillovers, are affected by the degree of product market competition. In this paper, we assess empirically the importance of this hypothesis for the first time by using the Finnish longitudinal employeer-employee data. We first quantify the importance of spillovers via worker mobility by estimating augmented production functions. Second, we analyse the impact of product market competition and absorptive capacity on worker mobility by estimating several competing risks models. We find that productivity spillovers arise only when workers move from MNEs to purely domestic firms in high-tech industries. Further, in line with predictions of Fosfuri et al, our results show that competition reduces worker mobility. This details a channel through which competition may affect total factor productivity of purely domestic plants adversely. Second Edition updated in September 2014.