Quid Pro Quo: Technology Capital Transfers for Market Access in China

62 Pages Posted: 27 Jul 2013 Last revised: 8 Oct 2014

See all articles by Thomas Holmes

Thomas Holmes

affiliation not provided to SSRN

Ellen McGrattan

University of Minnesota - Minneapolis

Thomas J. Holmes

University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

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)

Date Written: July 2013

Abstract

Despite the recent rapid development and greater openness of China's economy, FDI flows between China and technologically advanced countries are relatively small in both directions. We assess global capital flows in light of China's quid pro quo policy of exchanging market access for transfers of technology capital--accumulated know-how such as research and development (R&D) that can be used in multiple production locations. We first provide empirical evidence of this policy and then incorporate it into a multicountry dynamic general equilibrium model. This extension leads to a significantly better fit of the model to data. We also find large welfare gains for China--and welfare losses for its FDI partners--from quid pro quo.

Suggested Citation

Holmes, Thomas and McGrattan, Ellen and Holmes, Thomas J. and McGrattan, Ellen R. and Prescott, Edward C., Quid Pro Quo: Technology Capital Transfers for Market Access in China (July 2013). NBER Working Paper No. w19249, Available at SSRN: https://ssrn.com/abstract=2298961

Thomas Holmes (Contact Author)

affiliation not provided to SSRN

Ellen McGrattan

University of Minnesota - Minneapolis ( email )

110 Wulling Hall, 86 Pleasant St, S.E.
308 Harvard Street SE
Minneapolis, MN 55455
United States

Thomas J. Holmes

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
919 Management & Economics
Minneapolis, MN 55455
United States
612-625-4512 (Phone)
612-624-0209 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ellen R. McGrattan

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-340-2587 (Phone)
612-340-2356 (Fax)

University of Minnesota - Twin Cities

420 Delaware St. SE
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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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