A large empirical literature investigates the link between "openness" and growth. Cross-country observations suggest that (i) "openness" enhances growth by increasing a country's rate of investment, and (ii) variables related to equipment investment are robustly and strongly correlated with growth rates. This paper proposes a microeconomic mechanism for the link between openness, equipment investment and growth. A dynamic general equilibrium model is developed where countries that face different prices of imported equipment grow at different rates. The proposed theory is based on the notions of technology adoption and learning. Capital productivity depends on the match between the technology embodied in capital and the level of knowledge ("experience") it is combined with in production. Experience is accumulated through "learning-by-using," where using modern capital goods is essential for learning. When making investment decisions, firms choose the type of capital that best matches the level of knowledge available over its lifetime. In developing countries, this implies investment in outdated technologies. Equipment prices affect growth through (i) the rate at which old vintages of equipment are retired (accelerated obsolescence) and (ii) the choice of technologies embodied in new investment. Both in turn change the rate of learning and technology adoption. A calibrated version of the model yields a number of predictions that are testable with microeconomic data.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Arizona State University, Department of Economics in its series Working Papers with number
97/5.
Find related papers by JEL classification: F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander, 1995.
"North-South R&D Spillovers,"
CEPR Discussion Papers
1133, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted)
Other versions:
David T. Coe & Elhanan Helpman & Alexander Hoffmaister, 1995.
"North-South R&D Spillovers,"
NBER Working Papers
5048, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Berthold Herrendorf & Arilton Teixeira, .
"Barriers to Entry and Development,"
Working Papers
2167726, Department of Economics, W. P. Carey School of Business, Arizona State University.
[Downloadable!]