Industry level Technology Gaps and Complimentary Knowledge Stocks as Determinants of intra-MNC Knowledge Flows 1 Johannes Stephan and Björn Jindra 2 Halle Institute for Economic Research Halle (IWH) , Germany Ingmar Klugert Viadrina University Frankfurt/Oder, Germany Draft November 2005, A later version appeared in East-West Journal of Economics and Business, Vol. VIII, No. 1 & 2, pp. 135-156 (2005) Abstract Pursuing a subsidiary level analysis, we this paper tests the ‘technology gap’ hypothesis in the context of intra-MNC knowledge flows. Furthermore, it introduces complimentary knowledge stocks into the concept of absorptive capacity. A set of hypotheses is tested in sample 434 foreign subsidiaries based in Central and East Europe. We find partial support for the ‘technology gap’ hypothesis applied at industry level. Furthermore, subsidiaries’ complimentary knowledge stocks increase the probability for corresponding knowledge inflows from the foreign parent. Keywords: multinational corporations, foreign direct investment, technology transfer, productivity gap, absorptive capacity JEL-codes: F23, D83, O33 1 This research has been partially financed by the EU Commission, in the Key Action on Improving the Socio-economic Knowledge Base, contract no HPSE-CT-2001-00065. The authors are solely responsible for the contents which might not represent the opinion of the Community. The Community is not responsible for any use that might be made of data appearing in this publication. Particular thanks go out to Professor Hiroshi Tanaka at the Social Systems Research Institute - Ritsumeikan University (Japan) for valuable comments and additional support. 2 Corresponding author: Björn Jindra (Björn.Jindra@iwh-halle.de). 1