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

Thomas Holmes (), Ellen McGrattan and Edward Prescott

No 19249, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F23 F41 O33 O34 (search for similar items in EconPapers)
Date: 2013-07
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Published as Quid Pro Quo: Technology Capital Transfers for Market Access in China* Thomas J. Holmes University of Minnesota and Federal Reserve Bank of Minneapolis Ellen R. McGrattan University of Minnesota and Federal Reserve Bank of Minneapolis Edward C. Prescott Review of Economic Studies (2015) doi: 10.1093/restud/rdv008

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Journal Article: Quid Pro Quo: Technology Capital Transfers for Market Access in China (2015)
Working Paper: Quid pro quo: Technology capital transfers for market access in China (2013)
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