Abstract: Click to increase image sizeClick to decrease image size Notes Stephen Hymer, Burton A. Weisbrod & Harry G. Johnson, ‘Discussion’, The American Economic Review, Vol. 56, No. 1/2 (1966), p. 275. Pari Patel & Keith Pavitt, National Systems of Innovation Under Strain: The Internationalisation of Corporate R&D, Working Paper Series 98/22, Science Policy Research Unit, University of Sussex, also published in R. Barrel et al. (eds), Productivity, Innovation and Economic Performance (Cambridge University Press, 2000), ch. 9. Magnus Blomström, ‘Foreign Investment and Productive Efficiency: The Case of Mexico’, Journal of Industrial Economics, Vol. 35, No. 1 (1986), pp. 97–110. Magnus Blomström & Ari Kokko, FDI and Human Capital: A Research Agenda, OECD Technical Papers, No. 02/195, Paris, p. 13. Stephen Hymer, ‘The Efficiency (Contradictions) of Multinational Corporations’, The American Economic Review, Vol. 60, No. 2 (1970), pp. 441–8. Ari Kokko, ‘Technology, Market Characteristics, and Spillovers’, Journal of Development Economics, Vol. 43, No. 2 (1994), pp. 279–93. UNDP, Human Development Report 1990 (Oxford University Press, 1990). Stephen H. Hymer, ‘The multinational corporation and the law of uneven development’, in: J. N. Bhagwati (ed.), Economics and World Order from the 1970s to the 1990s (Collier–Macmillan, 1972), pp. 113–40. Keith Cowling & Roger Sugden, Beyond Capitalism: Towards a New World Economic Order (Pinter, 1994). Ronald H. Coase, ‘The Nature of the Firm’, Economica, Vol. 4, No. 16 (1937), pp. 386–405. Cowling & Sugden, Beyond Capitalism, p. 39. Roger Sugden, ‘Economías Multinacionales y la Ley del Desarrollo sin Equidad’ (Multinational Economies and the Law of Uneven Development), Revista de la Facultad de Ciencias Económícas y Sociales, Vol. 3, No. 4 (1997), pp. 87–109. Iris Marion Young, Justice and the Politics of Difference (Princeton University Press, 1990); Italian translation: Le politiche della differenza (Feltrinelli, 1996), p. 271. On the risk of fragmentation, see also Stephen Marglin, ‘What do Bosses Do?: The Origins and Functions of Hierarchy in Capitalist Production’, Review of Radical Political Economics, Vol. 6, No. 2 (1974), pp. 60–120. Max Weber emphasised the importance of religious ethics over consumption, whilst Duesenberry stressed the importance of imitation of externally consolidated consumer habits (the so‐called ‘demonstration effect’). See Max Weber, Die Protestantische Ethik und der Geist des Kapitalismus (Mohr, 1905); English translation: The Protestant Ethic and the Spirit of Capitalism (Scribner's Press, 1958); and James S. Duesenberry, Income, Saving and the Theory of Consumer Behavior (Harvard University Press, 1949). These contributions gave important instruments for the interpretation of phenomena such as the lack of capital accumulation, underinvestment, and the related obstacles that countries with problems such as those mentioned above have to face to increase their production capacity. See also Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries (Blackwell, 1953); Italian translation: La formazione del capitale nei paesi sottosviluppati (Einaudi, 1965), p. 7. Hymer, ‘The Efficiency (Contradictions) of Multinational Corporations’, p. 444. Brian J. Loasby, Explaining Firms, Working Paper Series No. 99/8, Copenhagen Business School, Copenhagen, p. 11. Cristiano Antonelli, ‘The Evolution of the Industrial Organisation of the Production of Knowledge’, Cambridge Journal of Economics, Vol. 23, No. 2 (1999), pp. 243–60. Alfred Marshall, Principles of Economics (Macmillan, 1961), Bk IV, ch. X. Nelson and Winter define routines as the ‘skills of an organisation’. Cf. Richard R. Nelson & Sidney G. Winter, An Evolutionary Theory of Economic Change (Harvard University Press, 1982), p. 124. Loasby, Explaining Firms, p. 12. Nicolai J. Foss, ‘Capabilities and the Theory of the Firm’, Revue D'Economie Industrielle, No. 77 (1996), pp. 7–28. Silvia Sacchetti & Roger Sugden, ‘The Governance of Networks and Economic Power: The Nature and Impact of Subcontracting Relationships’, Journal of Economic Surveys, Vol. 17, No. 5 (2003), pp. 669–91. On the relationship between investment and co‐ordination, see George B. Richardson, Information and Investment (Oxford University Press, 1960). There can be more labour in one hour spent to undertake a difficult piece of work than in two hours spent to perform an easy task, or in a job which requires ten years of learning before being able to undertake it, rather than in a common and generic activity. See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations; Italian translation: La ricchezza delle nazioni (Newton, 1995 [1776]), Bk 1, ch. V, p. 83. Howard Baetjer, ‘Capital as Embodied Knowledge: Some Implications for the Theory of Economic Growth’, Review of Austrian Economics, Vol. 13, No. 2 (2000), pp. 147–74. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Bk I, ch. I, p.70. David Ricardo, On the Principles of Political Economy and Taxation (John Murray, 1819); Italian translation: Principi di economia politica e dell'imposta (UTET, 1986), ch. XXXI. Karl Marx, Das Kapital: Kritik der Politischen Oekonomie; Italian translation: Il Capitale (Newton, 1996 [1867]) Bk I, ch. XIII, p. 288. Jonathan Michie et al., ‘Innovation and the Economy’, International Review of Applied Economics, Vol. 16, No. 3 (2002), pp. 253–64. Marglin, ‘What do Bosses Do?’. Horst Kern & Michael Schumann, Das Ende der Arbeitsteilung? (Becksche, 1984); Italian translation: La fine della divisione del lavoro? (Einaudi, 1991). Lucio Poma & Silvia Sacchetti, ‘Knowledge life cycles inside local economic systems’, in: P. Cooke & A. Piccaluga (eds), Regional Development in the Knowledge Economy (Routledge, forthcoming). Giovanni Zanetti, ‘Occupazione, progresso tecnico, globalizzazione: alcune riflessioni su dati a livello di settore e di impresa’, in: G. Zanetti (ed.), Produttività e occupazione: risultati di ricerche empiriche (Franco Angeli, 2001), pp. 59–105. M. Panic & P.L. Joyce, ‘UK Manufacturing Industry: International Integration and Trade Performance’, Bank of England Quarterly Bulletin, Vol. 20, No. 1 (1980), pp. 42–55. Nicolaj D. Kondrat'ev, ‘Die langen Wellen der Konjunktur’, Archiv für Sozialwissenschaft and Sozialpolitik, Vol. 56, No. 3 (1926), pp. 573–609; English translation: ‘The Long Waves in Economic Life’, The Review of Economic Statistics, Vol. 17, No. 6 (1935), pp. 105–15. Joseph A. Schumpeter, Theorie der wirtschaftlichen Entwicklung (Duncker & Humblot, 1912); English translation: The Theory of Economic Development (Harvard University Press, 1934). Keith Pavitt, ‘Patterns of Technological Change: Towards a Taxonomy and a Theory’, Research Policy, Vol. 13, No. 6 (1984), pp. 343–74. The description of Pavitt's categories is based on Giovanni Dosi, ‘La natura e gli effetti microeconomici del progresso tecnico’, in: G. Zanetti (ed.), Innovazione tecnologica e struttura produttiva (UTET, 1991), p. 147. Dosi, ‘La natura’, p. 137. A technological paradigm brings together needs and possible solutions by applying a number of scientific concepts together with a number of related technologies for the implementation of each solution. Archetypes (models of manufacturing products and processes) and heuristics (what are the pieces of knowledge that we need to develop in a specific field) define what it is technically possible and what it is not (opportunities). Technological paradigms describe pervasive technologies that influence the behaviour of firms throughout the economic system; cf. Giovanni Dosi et al. (eds), Technical Change and Economic Theory (Pinter, 1988). In other words, a paradigm determines the technological trajectory where innovations can be developed; cf. Nelson & Winter, An Evolutionary Theory of Economic Change, p. 258. Richard R. Nelson, ‘The co‐evolution of technology, industrial structure, and supporting institutions’, in: G. Dosi et al. (eds), Technology, Organization, and Competitiveness (Oxford University Press, 1998). Carlota Perez, ‘Structural Change and the Assimilation of New Technology in the Economic and Social System’, Futures, Vol. 15, No. 4 (1983), pp. 357–75; and Christopher Freeman, ‘The nature of innovation and the evolution of the productive system’, in: OECD, Technology and Productivity: The Challenge for Economic Policy (OECD, 1991), pp. 303–14. Nelson, ‘Co‐evolution’, p. 330. The role of the transnational corporation in the production of knowledge is not exclusive. Knowledge is produced also by firms that are not transnationals and which may be of small or medium size. The latter aspect is not being addressed in this work. Matthew J. Slaughter, Skill Upgrading in Developing Countries: Has Inward Foreign Direct Investment Played a Role?, OECD Technical Papers No. 02/192, Paris, p. 9. The source of the data quoted is: UNCTAD, World Investment Report 2000: Cross Border Mergers and Acquisitions and Development (United Nations, 2000). Cowling & Sugden, Beyond Capitalism; and Peter Nolan et al., ‘The Challenge of the Global Business Revolution’, Contributions to Political Economy, Vol. 21, No. 1 (2002), pp. 91–110. Silvia Sacchetti & Roger Sugden, Mental Proximity: Identifying the Boundaries of Firms and Networks, Working Papers Series No. 03/15, Dipartimento di Economia Istituzioni Territorio, Università degli Studi di Ferrara, Ferrara, p. 8. Raymond Vernon, ‘International Investment and International Trade in the Product Cycle’, Quarterly Journal of Economics, Vol. 80, No. 2 (1966), pp. 190–207. Rajneesh Narula, Multinational Firms, Regional Integration and Globalising Markets: Implications for Developing Countries, MERIT Infonomics Research Memorandum Series No. 01/36, Maastricht Economic Research Institute on Innovation and Technology, University of Maastricht. For a systematisation of the purpose, scale and major determinants of foreign technological activities, see Pari Patel & Modesto Vega, ‘Patterns of Internationalisation of Corporate Technology: Location vs. Home Country Advantages’, Research Policy, Vol. 28, No. 2–3 (1999), pp. 145–55. Narula, Multinational Firms, Regional Integration and Globalising Markets, p. 9. Patel & Vega, ‘Patterns of Internationalisation of Corporate Technology’, p. 154. For empirical evidences, see James Love, ‘Technology Sourcing versus Technology Exploitation’, Applied Economics, Vol. 35, No. 15 (2003), pp. 1667–78. Patel & Pavitt, National Systems of Innovation Under Strain, p. 7. Blomström & Kokko, FDI and Human Capital, p. 10. Tibor Scitovsky, ‘Two Concepts of External Economies’, The Journal of Political Economy, Vol. 62, No. 2 (1954), p. 145. Slaughter, Skill Upgrading in Developing Countries, p. 16. Raymond Vernon & W. H. Davidson, Foreign Production of Technology‐Intensive Products by U.S.‐based Multinational Enterprises, Working Papers Series No. 79/5, Graduate School of Business Administration, Harvard University. For two examples of contrasting results, see W. Chung et al., ‘Foreign direct investment and host country productivity: the American automotive component industry in the 1980s’, Journal of International Business Studies, Vol. 34, No. 2 (2003), pp. 199–218; and Jonathan E. Haskel et al., Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?, Working Papers Series 02/8724, National Bureau of Economic Research, Cambridge, MA. Slaughter, Skill Upgrading in Developing Countries, p. 16. Blomström & Kokko, FDI and Human Capital, p. 15; and Magnus Blomström et al., ‘Host Country Competition and Technology Transfer by Multinationals’, Weltwirtschaftliches Archiv, Vol. 130, pp. 521–33. Jeong‐Yeon Lee & Edwin Mansfield, ‘Intellectual Property Protection and U.S. Foreign Direct Investment’, Review of Economics and Statistics, Vol. 78, No. 2 (1996), pp. 181–6; and Keith E. Maskus & Guifang Yang, ‘Intellectual Property Rights, Foreign Direct Investment, and Competition Issues in Developing Countries’, International Journal of Technology Management, Vol. 19, No. 1–2 (1997), pp. 22–34. Edwin Mansfield & Anthony Romeo, ‘Technology Transfer to Overseas Subsidiaries by U.S.‐based Firms’, Quarterly Journal of Economics, Vol. 25, No. 4 (1980), pp. 737–50. Lucia Cusmano, Technology Policy and Co‐operative R&D: The Role of Relational Research Capacity, DRUID Working Papers Series No. 00/3, Department of Industrial Economics and Strategy, Copenhagen Business School and Department of Business Studies, Aalborg University. Wesley M. Cohen & Daniel A. Levinthal, ‘Innovation and Learning: The Two Faces of R&D’, The Economic Journal, Vol. 99, No. 397 (1989), pp. 569–96. Kondrat'ev, ‘The Long Waves in Economic Life’, p. 112. Technological changes occur within the trajectories defined by specific paradigms and changes of paradigms occur when innovations are so radical that they break the pre‐existing trajectory and subtract economic value from previous technologies. Such radical changes are somehow rare and prediction models inspired by Kondratieff's economic cycles have assessed the length of the wave for different industries; cf. Mario Silvestri, ‘Linee evolutive del progresso tecnico in relazione alle problematiche economiche’, in: Zanetti, Innovazione tecnologica e struttura produttiva, p. 43. In both cases innovative processes are based on pre‐existing knowledge, either in the forms of paradigms or, in the case of radical innovations, on the previous inventions or research results. On radical innovation, see Schumpeter, Theorie der wirtschaftlichen Entwicklung. On the role of institutional actors with respect to the development of countries' knowledge assets, see Bengt‐Åke Lundvall (ed.), National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning (Pinter, 1992); Patel & Vega, ‘Patterns of Internationalisation of Corporate Technology’, p. 154; and Nelson, ‘The Co‐evolution of Technology, Industrial Structure, and Supporting Institutions’, p. 328. Knowledge assumes here another significance with respect to productive knowledge. It is seen as the perception and recognition of the impact that individual action exerts at the collective level. When this kind of knowledge is institutionalised at the collective level (for instance, through norms and rules which govern economic interactions), local institutions can be better able to isolate behavioural patterns that are not consistent with local development policies and feedback their decisions, thus regulating individual actions that discord with local aims and objectives. John Dunning, Multinational Enterprises and the Global Economy (Addison‐Wesley, 1993). Maurice Zeitlin, ‘Corporate Ownership and Control: The Large Corporations and the Capitalist Class’, American Journal of Sociology, Vol. 79, No. 5 (1974), pp. 1073–1119. Nelson & Winter, An Evolutionary Theory of Economic Change. Gunnar Myrdal, Economic Theory and Under‐Developed Regions (Duckworth, 1957); Italian translation: Teoria Economica e Paesi Sottosviluppati (Feltrinelli, 1974), p. 39. Neoclassical economic theory has addressed economic development from a perspective based on the concept of stable equilibrium. Not least, this powerful concept has been at the basis of the theory of so‐called ‘free markets’, where markets have been considered the most effective mechanisms that lead to stable equilibria. In this context the notion of stable equilibrium has been used as an ideal reference point towards which economic systems should be oriented and, as a consequence, equilibrium has been used as a measure to formulate value judgements about the development of economic systems. One clear problem, however, remains. Stable equilibrium theories have not succeeded in explaining differences between regions and nations in terms of economic development. Cf. Myrdal, Economic Theory and Under‐Developed Regions, p. 20 (Italian translation). Critiques of the concept of free markets are based on the idea that power is a constituent element of economies and that economic actors do not have equal power when interacting on the market. See Sacchetti & Sugden, ‘The Governance of Networks and Economic Power’, p. 672. Parimal Patel & Keith Pavitt, ‘Uneven (and divergent) technological accumulation among advanced countries: evidence and a framework of explanation’, in: Dosi et al., Technology, Organization, and Competitiveness, p. 303. Brian W. Arthur, ‘Silicon Valley Locational Clusters: When Do Increasing Returns Imply Monopoly?’ Mathematical Social Sciences, Vol. 19 (1990), pp. 235–51; Annalee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (Harvard University Press, 1994); and Maryann P. Feldman, The Geography of Innovation (Kluwer, 1994). However, there may be exceptions related to the ‘mental proximity’ of actors, which is the proximity of organisational views when this is not the outcome of some actor imposing its own view over the view of someone else. In particular, we use the notion of mental proximity to indicate the degree of compatibility in objectives, strategies and means to achieve them. Taking an institutionalist perspective, we maintain that, whenever actors can understand each other on the basis of shared norms, values and beliefs, then mental proximity does not necessarily require geographical concentration. Rather, it is consistent with dispersed communities of actors. When members of dispersed communities interact, they draw the boundaries of networks beyond localities and national borders. In this sense, knowledge in production is exchanged, adapted and created as the ‘real’ outcome of actors who are mentally close but geographically distant for at least most of the time. These sectors have been identified by Patel and Pavitt through an analysis of the geographic location of large firms' US patenting activities. Cf. Patel & Pavitt, ‘Uneven (and divergent) technological accumulation’, p. 304. The degree of non‐observable knowledge as well as the effectiveness of the legal framework which regulates appropriability of innovation plays an important role in regulating the magnitude of this kind of externality. Dunning, Multinational Enterprises and the Global Economy. However, the strategies pursued through FDI can be interpreted from other perspectives, namely, ‘divide‐and‐rule’ strategies and imitation and risk reduction strategies. For a deeper treatment, see Christos N. Pitelis & Roger Sugden (eds), The Nature of the Transnational Firm (Routledge, 1991). Patel & Pavitt, National Systems of Innovation Under Strain, p. 6. Hymer, ‘The multinational corporation and the law of uneven development’, p. 123. Specialisation as a means to organise production has been explained by neoclassical economics in terms of efficiency. However—expanding on Smith's Wealth of Nations—Marglin has emphasised that the choice of the division of labour lies ‘between the workman whose span of control is wide enough that he sees how each operation fits into the whole and the workman confined to a small number of repetitive tasks. It would be surprising indeed if the workman's propensity to invent has not been diminished by the extreme specialisation that characterises the capitalist division of labor.’ Cf. Marglin, ‘What do Bosses Do?’. These considerations, we argue, can be applied when looking at the division of labour across localities. In particular, we refer to the distinction between ‘fragmentation’ as opposed to ‘specialisation’ described in the Introduction. Hamel, for example, has noticed that in strategic alliances—depending on the degree of access and internalisation of new knowledge that partners can achieve by working together—there may be a relevant ‘reapportionment of skills’ between partners. This uneven learning changes the relative power of actors within the alliance. Therefore, the distribution of power within economies may also be partly linked to the endogenously determined capabilities of individuals and organisations. See Gary Hamel, ‘Competition for Competence and Inter‐Partner Learning within International Strategic Alliances’, Strategic Management Journal, Vol. 12, Special Issue (1991), pp. 83–103; and Herbert A. Simon, ‘The Many Shapes of Knowledge’, Revue d'Economie Industrielle, 2nd semester, No. 88 (1999), pp. 23–41. Borrowing from Tocqueville, Daniel Bell presented the process of growth as a ‘marching column’. The disposition of the column reflects income distribution, which does not change significantly over time, while the column—as a whole—advances. Whilst this advancement occurs, the bottom of the column reaches and overcomes the point where the top was at the time before. However, as the whole column is moving, the bottom could never be where the top is, unless it breaks rank and runs to the front. See Daniel Bell, The Coming of the Post‐Industrial Society (Heinemann, 1974); and also Fred Hirsch, Social Limits to Growth (Harvard University Press, 1976); Italian translation: I limiti sociali allo sviluppo (Bompiani, 1991), p. 176. The HDI is based on three indicators: life expectancy at birth; adult literacy rate and combined primary, secondary and tertiary gross enrolment ratio; and GDP per capita (adjusted PPP US$). The Human Development Index for high human development countries is 0.8 and above; for medium human development countries is between 0.5 and 0.799; and for low human development countries is below 0.5. See UNDP, Human Development Report 2000 (Oxford University Press, 2000); Italian translation: Rapporto 2000 su Lo Sviluppo Umano (Rosenberg & Sellier, 2000), p. 302. The World Bank 1996 Report states that 30 per cent of GDP in developing countries is produced in eight countries that are mainly Asian. This share of GDP generated two‐thirds of oveall FDI flows in 1990–93. Conversely, over the past decade ratios of FDI to GDP fell in most of the other world regions (mainly Sub‐Saharan Africa). See World Bank, World Development Report 1996: From Plan to Market (Oxford University Press, 1996), p. 22. Hymer, ‘The Efficiency (Contradictions) of Multinational Corporations’, p. 443. Albert O. Hirschman, The Strategy of Economic Development (Yale University Press, 1963); Italian translation: La strategia dello sviluppo economico (La Nuova Italia, 1968), p. 6. Additional informationNotes on contributorsSilvia Sacchetti Silvia Sacchetti, Facoltà di Economia, Università degli Studi di Ferrara, L'institute, Via del Gregorio 13, 44 100 Ferrra, Italy. Silvia Sacchetti, Facoltà di Economia, Università degli Studi di Ferrara, L'institute, Via del Gregorio 13, 44 100 Ferrra, Italy.