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Openness, Technology Capital, and Development

  • Edward Prescott

    (ASU and Federal Reserve Bank of Minneapolis)

  • Ellen McGrattan

    (Federal Reserve Bank of Minneapolis)

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 Society for Economic Dynamics in its series 2008 Meeting Papers with number 111.

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Date of creation: 2008
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Handle: RePEc:red:sed008:111
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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. Harold L. Cole & Lee E. Ohanian & Alvaro Riascos & James A. Schmitz, Jr., 2004. "Latin America in the Rearview Mirror," NBER Working Papers 11008, National Bureau of Economic Research, Inc.
  3. Robert E. Lucas, Jr., 2007. "Trade and the Diffusion of the Industrial Revolution," NBER Working Papers 13286, National Bureau of Economic Research, Inc.
  4. 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.
  5. 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.
  6. Thomas J. Holmes & James A. Schmitz, Jr., 1994. "Resistance to technology and trade between areas," Staff Report 184, Federal Reserve Bank of Minneapolis.
  7. 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.
  8. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
  9. 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.
  10. 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.
  11. 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.
  12. Bourlès, R. & Cette, G., 2006. "Trends in "structural" productivity levels in the major industrialized countries," Working papers 156, Banque de France.
  13. 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.
  14. Bourlès, R. & Cette, G., 2005. "A comparison of Structural Productivity Levels in the Major Industrialised Countries," Working papers 133, Banque de France.
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