Working Paper: NBER ID: w13515
Authors: Ellen McGrattan; Edward C. Prescott
Abstract: 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.
Keywords: Openness; Foreign Direct Investment; Technology Capital; Economic Development
JEL Codes: F23; F41; O11; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Openness to foreign direct investment (FDI) (F23) | Productivity (O49) |
| Openness to foreign direct investment (FDI) (F23) | Technology capital (E22) |
| Technology capital (E22) | Productivity (O49) |
| Similar countries forming economic unions (F36) | Productivity (O49) |
| Unilateral opening (F41) | Benefits to the opening country (F14) |
| Openness (O36) | Total factor productivity (TFP) increases (O49) |