When should firms pay more to hire internationally?

Sep. 9, 2022

  • Profile Picture of Ram Mudambi


Is it worth it for firms based in peripheral economies, whose countries are affluent but lag in cutting edge innovation, to pay more for workers from core economies, whose countries hold predominant power in the global economy?

Ram Mudambi finds that in Portugal and Greece, two peripheral economies, contracting with more expensive inventors from core economies may be worth the extra cost. Importantly, contracting internationally is most effective in the case of utility patents, where production methods can be easily communicated through written information (such as a software program). For design patents, where production methods rely on passing tacit knowledge, contracting locally makes for a better production process.