Unpacking the black box of knowledge externalities: intra-MNE networks vs. spatial spillovers

Combining economic geography and international business literature on Multinational Enterprises (MNEs), we explore knowledge dissemination patterns within and across NUTS-3 regions. Our results, based on Italy, indicate that external knowledge collected by MNEs through their network of subsidiaries abroad is positively associated with the innovative output of the regions of origin of MNEs. Moreover, its diffusion over space occurs through two intra-firm mechanisms: one involving MNEs and their domestic affiliates, and the other involving indigenous firms co-located with MNEs and owning other firms in different regions. The intensity of these mechanisms strongly depends on the technological space in which firms operate.