Reverse international knowledge transfer in the MNE: (Where) does affiliate performance boost parent performance?

Abstract

We examine the extent to which the knowledge or technological capability of foreign affiliates actually enhances the performance of their parent companies. Our results draw on a firm-level panel of more than 1600 multinationals and more than 4000 of their overseas affiliates, covering 46 home and host countries. We find considerable evidence of enhanced parent productivity as a result of their affiliates’ performance, which we interpret as evidence of reverse knowledge transfer from affiliates to parents. This effect is robust to different tests including IV estimation and a falsification exercise based on unconnected ‘matched’ affiliates. We find that both physical and strategic location markedly affects the affiliate-parent relationship, and that distance reduces the positive impact that affiliate performance has on that of the parent.