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Openness, technology capital, and development

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  • Ellen R. 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.

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  • Ellen R. McGrattan & Edward C. Prescott, . "Openness, technology capital, and development," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:396
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    References listed on IDEAS

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    Cited by:

    1. Ellen R. McGrattan & Edward C. Prescott, 2010. "Technology Capital and the US Current Account," American Economic Review, American Economic Association, vol. 100(4), pages 1493-1522, September.
    2. Basu, Parantap & Gillman, Max & Pearlman, Joseph, 2012. "Inflation, human capital and Tobin's q," Journal of Economic Dynamics and Control, Elsevier, vol. 36(7), pages 1057-1074.
    3. 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.
    4. Ellen R. McGrattan & Edward C. Prescott, 2009. "Technology capital and the U.S. current account," Staff Report, Federal Reserve Bank of Minneapolis.
    5. Michele Boldrin & David K Levine, 2008. "Quality Ladders, Competition and Endogenous Growth," 2008 Meeting Papers 277, Society for Economic Dynamics.

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