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Technological Transfers, Limited Commitment and Growth

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Author Info
Alexandre Dmitriev () (School of Economics, The University of New South Wales)

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Abstract

Evidence shows that there are substantial rich-to-poor international capital flows although not as abundant as differences in rates of return would suggest. These flows are procylcical: abundant in good times and scarce in bad times. Conventional growth models face certain difficulties in accounting for this pattern. In this paper, we propose a dynamic model of capital flows to developing countries which is qualitatively consistent with these empirical regularities. The model is based on three main premises: i) international lending contracts are imperfectly enforceable; ii) access to the international financial markets results in technological transfers to a developing country from the rest of the world; iii) some of the productivity gains associated with the access to external financing are perishable. We solve for transitional dynamics of the model economy with endogenously incomplete markets and compare the results with the solutions obtained from the perfect risk-sharing and autarkic environments. Our findings suggest that technological transfers may play a role of an important enforcement mechanism. In our framework, existence of substantial rich-to-poor capital flows is not inconsistent with the presence of default risk.

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Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2008-05.

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Length: 46 pages
Date of creation: Mar 2008
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Handle: RePEc:swe:wpaper:2008-05

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Related research
Keywords: Incentive compatibility; technological diffusion; international capital flows; default risk;

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Find related papers by JEL classification:
C63 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Computational Techniques
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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