Innovation and the International Firm Structure: Theory and Evidence from German Firm-Level Data

This paper studies the impact of innovation on the organizational structure. The theoretical framework predicts that a larger parental pool of knowledge raises the probability of offshoring. This holds in a national as well as an international context. However, when the producer loses territorial protection, the changeover from non-integration to integration is delayed. Employing data on German firms investing in Eastern Europe finds empirical evidence for the theoretical predictions. The results are robust to different measurements and an instrumental variable regression. JEL classification: D23; D51; F23; L14; L21; L22; L23 This is Chapter 1 of my doctoral thesis and I would like to thank the participants of the International Economics Workshop at the University of Munich for helpful comments and stimulating discussions. I am also grateful to my colleagues at the Chair for International Economics. In addition, financial support from the Deutsche Forschungsgemeinschaft through SFB/TR15 is gratefully acknowledged.