The Hardships of Long Distance Relationships: Time Zone Proximity and Knowledge Transmission Within Multinational Firms

63 Pages Posted: 13 Sep 2017 Last revised: 9 Jun 2018

See all articles by Dany Bahar

Dany Bahar

Brown University - Watson Institute for International and Public Affairs; Harvard University - Center for International Development (CID)

Multiple version iconThere are 3 versions of this paper

Date Written: May 30, 2018

Abstract

Using a unique dataset on worldwide multinational corporations with precise location of headquarters and affiliates, I present evidence of a trade-off between distance to the headquarters and the knowledge intensity of the foreign subsidiary's economic activity, emerging from dynamics related to the proximity-concentration hypothesis. This trade-off is strongly diminished the higher the overlap in working hours between the headquarters and its foreign subsidiary. In order to rule out biases arising from confounding factors, I implement a regression discontinuity framework to show that the economic activity of a foreign subsidiary located just across the time zone line that increases the overlap in working hours with its headquarters is, on average, about one percent higher in the knowledge intensity scale. I find no evidence of the knowledge intensity and distance trade-off weakening when a non-stop flight exists between the headquarters and the foreign subsidiary. The findings suggest that lower barriers to real-time communication within the multinational corporation play an important role in the location strategies of multinational corporations.

Keywords: multinational firms, multinational corporations, knowledge, location, proximity concentration hypothesis, FDI

JEL Classification: F23, L22, L25

Suggested Citation

Bahar, Dany, The Hardships of Long Distance Relationships: Time Zone Proximity and Knowledge Transmission Within Multinational Firms (May 30, 2018). Available at SSRN: https://ssrn.com/abstract=2674682 or http://dx.doi.org/10.2139/ssrn.2674682

Dany Bahar (Contact Author)

Brown University - Watson Institute for International and Public Affairs ( email )

111 Thayer Street
Box 1970
Providence, RI 02912-1970
United States

Harvard University - Center for International Development (CID)

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

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