Creation and exploitation of knowledge in multinationals : the importance of local and global spillovers for domestic and foreign exporters

This paper examines the importance of localized knowledge for innovative exporters by observing their embeddedness in regional innovation systems and international knowledge flow by using trade data on openness. The study distinguishes between new competence creation as proxied by patent applications and new competence exploitation captured by the frequency of launching new products on the export market, and overall technical changes captured by total factor productivity growth. We compare the new knowledge creation in 1,000 domestically and foreign owned Multinational Enterprises (MNEs) in Sweden over the period 1997-2008, and new knowledge exploiting in 1,500 MNEs and technical change for both knowledge creators and knowledge exploiters. Our first total factor regression confirms the expected results that foreign MNEs are superior to their domestic counterparts in term of growth rate. We then try to explain this finding by their capacity to utilize local and global knowledge for creating and exploiting new knowledge.