Technological Transfers, Limited Commitment and Growth

Alexandre Dmitriev

No 2008-05, Discussion Papers from School of Economics, The University of New South Wales

Abstract: Evidence shows that there are substantial rich-to-poor international capital flows although not as abundant as differences in rates of return would suggest. These flows are procylcical: abundant in good times and scarce in bad times. Conventional growth models face certain difficulties in accounting for this pattern. In this paper, we propose a dynamic model of capital flows to developing countries which is qualitatively consistent with these empirical regularities. The model is based on three main premises: i) international lending contracts are imperfectly enforceable; ii) access to the international financial markets results in technological transfers to a developing country from the rest of the world; iii) some of the productivity gains associated with the access to external financing are perishable. We solve for transitional dynamics of the model economy with endogenously incomplete markets and compare the results with the solutions obtained from the perfect risk-sharing and autarkic environments. Our findings suggest that technological transfers may play a role of an important enforcement mechanism. In our framework, existence of substantial rich-to-poor capital flows is not inconsistent with the presence of default risk.

Keywords: Incentive compatibility; technological diffusion; international capital flows; default risk (search for similar items in EconPapers)
JEL-codes: C63 F34 O33 O40 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2008-03
New Economics Papers: this item is included in nep-dge
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Related works:
Working Paper: Technological Transfers, Limited Commitment and Growth (2008)
Working Paper: Technological Transfers, Limited Commitment and Growth (2006)
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