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Public Investment, Taxation and Transfer of Technology

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  • Kollias, Iraklis
  • Marjit, Sugata
  • Michelacakis, Nickolas

Abstract

A low wage developing economy (South) is interested in accessing and attracting superior technology from a high wage developed economy (North) with firms having heterogeneous quality of technology. To improve upon the initial market equilibrium, which shows that relatively inefficient technologies will move to the South, the host government invests in infrastructure financed through taxing the foreign firms. We discuss the problem of existence of such a tax-transfer mechanism within a balanced budget framework. We argue that such a policy can increase tax revenue as well as instigate the transfer of better quality technology. It turns out that this policy is more likely to be successful when the production concerns high value, high price products in low wage economies. Our results improve upon the conventional strategy of a tax break.

Suggested Citation

  • Kollias, Iraklis & Marjit, Sugata & Michelacakis, Nickolas, 2017. "Public Investment, Taxation and Transfer of Technology," MPRA Paper 78853, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:78853
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    File URL: https://mpra.ub.uni-muenchen.de/78853/1/MPRA_paper_78853.pdf
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    References listed on IDEAS

    as
    1. Kamal Saggi, 2002. "Trade, Foreign Direct Investment, and International Technology Transfer: A Survey," World Bank Research Observer, World Bank Group, vol. 17(2), pages 191-235, September.
    2. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-266, April.
    3. Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "The Effects of Taxation on Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, number 9780226240954, March.
    4. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
    5. Kabiraj, Tarun & Marjit, Sugata, 2003. "Protecting consumers through protection: The role of tariff-induced technology transfer," European Economic Review, Elsevier, vol. 47(1), pages 113-124, February.
    6. Marjit, Sugata, 1988. "A simple model of technology transfer," Economics Letters, Elsevier, vol. 26(1), pages 63-67.
    7. Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, Oxford University Press, vol. 92(1), pages 1-16.
    8. Kabiraj, Tarun & Marjit, Sugata, 1993. "International technology transfer under potential threat of entry : A Cournot-Nash framework," Journal of Development Economics, Elsevier, vol. 42(1), pages 75-88, October.
    9. Michelacakis, Nickolas, 2014. "A model of technology transfer under taxation," MPRA Paper 58632, University Library of Munich, Germany.
    10. Sugata Marjit & Arijit Mukherjee, 2015. "Endogenous Market Structure, Trade Cost Reduction, and Welfare," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(3), pages 493-511, September.
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    12. Beladi, Hamid & Dutta, Meghna & Kar, Saibal, 2016. "FDI and Business Internationalization of the Unorganized Sector: Evidence from Indian Manufacturing," World Development, Elsevier, vol. 83(C), pages 340-349.
    13. Mukherjee, Arijit & Pennings, Enrico, 2006. "Tariffs, licensing and market structure," European Economic Review, Elsevier, vol. 50(7), pages 1699-1707, October.
    14. Findlay, Ronald, 1978. "Some Aspects of Technology Transfer and Direct Foreign Investment," American Economic Review, American Economic Association, vol. 68(2), pages 275-279, May.
    15. Martin Feldstein & James R. Hines Jr. & R. Glenn Hubbard, 1995. "The Effects of Taxation on Multinational Corporations," NBER Books, National Bureau of Economic Research, Inc, number feld95-2, Juni.
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    More about this item

    Keywords

    public investment; tax; high-low wage economy; technology transfer; model;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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