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

Thomas J. Holmes, Ellen R. McGrattan, Edward C. Prescott

NBER Working Paper No. 19249
Issued in July 2013
NBER Program(s):   EFG   IFM   PR

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.

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This paper was revised on November 1, 2013

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Document Object Identifier (DOI): 10.3386/w19249

Published: 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 citation courtesy of

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