NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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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An online appendix is available for this publication.

This paper was revised on November 1, 2013

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19249

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