Openness, Technology Capital, and Development

Posted: 22 Jul 2008

See all articles by Ellen R. McGrattan

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities; National Bureau of Economic Research (NBER)

Edward C. Prescott

Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2007

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. Technology capital is distinguished from other forms of capital in that a firm can use it simultaneously in multiple domestic and foreign locations. A country can exploit foreign technology capital by permitting direct investment by foreign multinationals. In both steady-state and transitional analyses, the extended growth model predicts large gains to being open.

Keywords: Openness, foreign direct investment

JEL Classification: F23, F43, O11

Suggested Citation

McGrattan, Ellen R. and Prescott, Edward C., Openness, Technology Capital, and Development (October 2007). Available at SSRN: https://ssrn.com/abstract=1162931

Ellen R. McGrattan (Contact Author)

Federal Reserve Bank of Minneapolis - Research Department ( email )

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University of Minnesota - Twin Cities

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National Bureau of Economic Research (NBER)

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Edward C. Prescott

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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