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Openness, technology capital, and development

  • McGrattan, Ellen R.
  • Prescott, Edward C.

In this paper, we extend the growth model to include firm-specific technology capital and use it to assess the gains from opening to foreign direct investment. A firm's technology capital is its unique know-how from investing in research and development, brands, and organization capital. Technology capital is distinguished from other forms of capital in that a firm can use it simultaneously in multiple domestic and foreign locations. A country can exploit foreign technology capital by permitting direct investment by foreign multinationals. In both steady-state and transitional analyses, the extended growth model predicts large gains to being open.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 6 (November)
Pages: 2454-2476

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:6:p:2454-2476
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Edward Prescott & Ellen McGrattan, 2007. "Technology Capital and the U.S. Current Account," 2007 Meeting Papers 90, Society for Economic Dynamics.
  2. Bourlès, R. & Cette, G., 2005. "A comparison of Structural Productivity Levels in the Major Industrialised Countries," Working papers 133, Banque de France.
  3. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
  4. Ariel Burstein & Alexander Monge-Naranjo, 2007. "Foreign Know-How, Firm Control, and the Income of Developing Countries," NBER Working Papers 13073, National Bureau of Economic Research, Inc.
  5. Martin Neil Baily & Robert M. Solow, 2001. "International Productivity Comparisons Built from the Firm Level," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 151-172, Summer.
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  7. Susumu Imai & Michael P. Keane, 2004. "Intertemporal Labor Supply and Human Capital Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 601-641, 05.
  8. Robert E. Lucas, 2009. "Trade and the Diffusion of the Industrial Revolution," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 1-25, January.
  9. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  10. Bourlès, R. & Cette, G., 2006. "Trends in "structural" productivity levels in the major industrialized countries," Working papers 156, Banque de France.
  11. Holmes, Thomas J. & Jr., James A. Schmitz, 2001. "A gain from trade: From unproductive to productive entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 417-446, April.
  12. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "Tax Policy and Human-Capital Formation," American Economic Review, American Economic Association, vol. 88(2), pages 293-97, May.
  13. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the rearview mirror," Staff Report 351, Federal Reserve Bank of Minneapolis.
  14. Thomas J. Holmes & James A. Schmitz, Jr., 1995. "Resistance to new technology and trade between areas," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-17.
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