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Quid Pro Quo: Technology Capital Transfers for Market Access in China

Author

Listed:
  • Thomas J. Holmes
  • Ellen R. McGrattan
  • Edward C. Prescott

Abstract

By the 1970s, quid pro quo policy, which requires multinational firms to transfer technology in return for market access, had become a common practice in many developing countries. While many countries have subsequently liberalized quid pro quo requirements, China continues to follow the policy. In this article, we incorporate quid pro quo policy into a multicountry dynamic general equilibrium model, using microevidence from Chinese patents to motivate key assumptions about the terms of the technology transfer deals and macroevidence on China's inward foreign direct investment (FDI) to estimate key model parameters. We then use the model to quantify the impact of China's quid pro quo policy and show that it has had a significant impact on global innovation and welfare.

Suggested Citation

  • Thomas J. Holmes & Ellen R. McGrattan & Edward C. Prescott, 2015. "Quid Pro Quo: Technology Capital Transfers for Market Access in China," Review of Economic Studies, Oxford University Press, vol. 82(3), pages 1154-1193.
  • Handle: RePEc:oup:restud:v:82:y:2015:i:3:p:1154-1193.
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    File URL: http://hdl.handle.net/10.1093/restud/rdv008
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    References listed on IDEAS

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    1. Linda Yueh & Linda Yueh & John Van Reenen, 2012. "Why has China grown so fast? The role of international technology transfer," Economics Series Working Papers 592, University of Oxford, Department of Economics.
    2. McGrattan, Ellen R. & Prescott, Edward C., 2009. "Openness, technology capital, and development," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2454-2476, November.
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    4. Branstetter, Lee & Fisman, Ray & Foley, C. Fritz & Saggi, Kamal, 2011. "Does intellectual property rights reform spur industrial development?," Journal of International Economics, Elsevier, vol. 83(1), pages 27-36, January.
    5. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    6. Charles R. Hulten & Janet X. Hao, 2012. "The Role Of Intangible Capital in the Transformation and Growth of the Chinese Economy," NBER Working Papers 18405, National Bureau of Economic Research, Inc.
    7. Lai, Edwin L. -C., 1998. "International intellectual property rights protection and the rate of product innovation," Journal of Development Economics, Elsevier, vol. 55(1), pages 133-153, February.
    8. Markusen, James R., 2001. "Contracts, intellectual property rights, and multinational investment in developing countries," Journal of International Economics, Elsevier, vol. 53(1), pages 189-204, February.
    9. Galina Hale & Cheryl Long, 2011. "Are There Productivity Spillovers From Foreign Direct Investment In China?," Pacific Economic Review, Wiley Blackwell, vol. 16(2), pages 135-153, May.
    10. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2015. "A Linder Hypothesis for Foreign Direct Investment," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 83-121.
    11. Hélène Dernis & Mosahid Khan, 2004. "Triadic Patent Families Methodology," OECD Science, Technology and Industry Working Papers 2004/2, OECD Publishing.
    12. repec:idb:brikps:9167 is not listed on IDEAS
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    Citations

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    Cited by:

    1. McGrattan, Ellen R. & Waddle, Andrea L., 2017. "The Impact of Brexit on Foreign Investment and Production," Staff Report 542, Federal Reserve Bank of Minneapolis.
    2. Hu, Albert G.Z. & Zhang, Peng & Zhao, Lijing, 2017. "China as number one? Evidence from China's most recent patenting surge," Journal of Development Economics, Elsevier, vol. 124(C), pages 107-119.
    3. Gomtsyan David, 2016. "Economic Development and the Direction of FDI Flows," Global Economy Journal, De Gruyter, vol. 16(1), pages 91-112, March.
    4. Prescott, E.C., 2016. "RBC Methodology and the Development of Aggregate Economic Theory," Handbook of Macroeconomics, Elsevier.
    5. Krammer, Sorin M.S., 2015. "Do good institutions enhance the effect of technological spillovers on productivity? Comparative evidence from developed and transition economies," Technological Forecasting and Social Change, Elsevier, vol. 94(C), pages 133-154.
    6. Aizenman, Joshua, 2015. "The internationalization of the RMB, capital market openness, and financial reforms in China," BOFIT Discussion Papers 4/2015, Bank of Finland, Institute for Economies in Transition.
    7. Panle Jia Barwick & Shengmao Cao & Shanjun Li, 2017. "Local Protectionism, Market Structure, and Social Welfare: China's Automobile Market," NBER Working Papers 23678, National Bureau of Economic Research, Inc.
    8. Liu, Qing & Qiu, Larry D., 2016. "Intermediate input imports and innovations: Evidence from Chinese firms' patent filings," Journal of International Economics, Elsevier, vol. 103(C), pages 166-183.
    9. Fabrice Defever & Alejandro Riaño, 2017. "China’s Dual Export Sector," Discussion Papers 2017-01, University of Nottingham, GEP.
    10. repec:eee:respol:v:47:y:2018:i:8:p:1448-1462 is not listed on IDEAS
    11. repec:eee:tefoso:v:129:y:2018:i:c:p:56-75 is not listed on IDEAS
    12. Joshua Aizenman, 2015. "Internationalization of the RMB, Capital Market Openness and Financial Reforms in China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 444-460, August.
    13. Edward C. Prescott, 2016. "Northern America’s Production of Technology Capital Is Transforming the World Economy," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 51(3), pages 127-132, July.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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