Foreign employees as channel for technology transfer: Evidence from MNC's subsidiaries in Mexico

This paper studies the role of foreign employees as a channel for technology transfer in multinational companies (MNCs). We build a simple model of MNC choice between foreign and domestic management as a function of industry characteristics and of institutional quality. We find that foreign employees are a channel for technology transfer within high-tech MNCs. Further, the reliance of MNCs on foreign employees is U-shaped in terms of institutional quality. Our model implies that we should observe the same pattern between technology transfer and institutional quality. We use a unique dataset that links information on technology transfer and the presence of foreign employees in subsidiaries in Mexico with data on judicial efficiency across Mexican states. The evidence is consistent with the implications of the model and difficult to reconcile with alternative hypotheses.