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Openness, Technology Capital, and Development

  • Ellen McGrattan
  • Edward C. Prescott

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. What distinguishes technology capital from other forms of capital is the fact that a firm can use it simultaneously in multiple domestic and foreign locations. Foreign technology capital is exploited by permitting foreign direct investment by multinationals. In both steady-state and transitional analyses, the extended growth model predicts large gains to being open.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13515.

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Date of creation: Oct 2007
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Publication status: published as McGrattan, Ellen R. & Prescott, Edward C., 2009. "Openness, technology capital, and development," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2454-2476, November.
Handle: RePEc:nbr:nberwo:13515
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  1. 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.
  2. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Tax Policy and Human Capital Formation," NBER Working Papers 6462, National Bureau of Economic Research, Inc.
  3. Renaud Bourlès & Gilbert Cette, 2005. "Une comparaison des niveaux de productivité structurels des grands pays industrialisés," Revue économique de l'OCDE, OECD Publishing, vol. 2005(2), pages 83-117.
  4. Edward Prescott & Ellen McGrattan, 2007. "Technology Capital and the U.S. Current Account," 2007 Meeting Papers 90, Society for Economic Dynamics.
  5. Cole, Harold L. & Ohanian, Lee E. & Riascos, Alvaro & Schmitz, James Jr, 2005. "Latin America in the rearview mirror," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 69-107, January.
  6. 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.
  7. 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.
  8. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
  9. 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.
  10. 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.
  11. Bourlès, R. & Cette, G., 2006. "Trends in "structural" productivity levels in the major industrialized countries," Working papers 156, Banque de France.
  12. 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.
  13. 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.
  14. Bourlès, Renaud & Cette, Gilbert, 2005. "A comparison of structural productivity levels in the major industrialised countries," MPRA Paper 7330, University Library of Munich, Germany.
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