Working Paper: NBER ID: w31159
Authors: Yunfang Hu; Takuma Kunieda; Kazuo Nishimura; Ping Wang
Abstract: We construct a dynamic general equilibrium model of foreign direct investment (FDI) and foreign technology adoption, incorporating adoption barriers, international technology spillover, and relative price advantages. A higher FDI conversion efficacy, a lower adoption barrier, or a stronger international technology spillover, together with a lower relative price of FDI, can propel an economy to exhibit a flying geese paradigm escaping from a middle-income trap and catching up with the world frontier. We calibrate the model to eight representative Asian economies, including Asian Tigers and less-developed countries. Growth accounting exercises show that total factor productivity, FDI conversion efficacy, and foreign technology spillover drive Asian Tigers’ growth miracle, whereas a reduced adoption barrier and a favorable relative price of FDI are more crucial for the growth of less-developed Asian economies. The counterfactual analysis confirms that technology-embodied FDI serves as a flying propeller, explaining almost two-thirds of their economic growth.
Keywords: No keywords provided
JEL Codes: E20; F21; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher FDI conversion efficacy (F21) | Increased foreign technology adoption (O39) |
| Increased foreign technology adoption (O39) | Economic growth (O00) |
| Higher FDI conversion efficacy (F21) | Economic growth (O49) |
| Lower adoption barriers (J13) | Increased foreign technology adoption (O39) |
| Increased foreign technology adoption (O39) | Economic growth (O49) |
| Stronger international technology spillovers (O39) | Increased foreign technology adoption (O39) |
| Stronger international technology spillovers (O39) | Economic growth (O00) |
| Lower relative price of FDI (F21) | Increased foreign technology adoption (O39) |