Naotaka Sawada, University of Hawaii at Manoa

Abstract

The endogenous growth model with learning-by-doing and knowledge spillovers of Barro and Sala-i-Martin (1999) is modified by changing the assumption of technology as a public good to a private good. The model has a unique approach by applying FDI effects of technology transfer and spillovers separately to the economic growth in the situation of developing countries.

I analyze the relation of FDI and the growth rates of per capita capital, consumption, and income by aggregating the firm's profit maximization and consumer's utility maximization. The contribution of technology transfer and spillovers is linked to the economic growth of a developing country.

First, I analyze the dynamic behaviors of the foreign firms and the home firms in capital accumulation. There may be equilibrium between the foreign capital and the home capital if the population growth rate is less (more) than the rate of return on capital and the net FDI inflow is negative (positive). On the other hand, both the foreign capital and the home capital keep increasing (decreasing) if the population growth is less (more) than the rate of return on capital and the net FDI inflow is positive (negative).

Based on the behaviors of the foreign firms and the home firms, consumption behavior and income are also analyzed. An increase in the net FDI inflow provides positive economic impacts on not only consumption, capital, and income, but their growth rates as well, if the government chooses appropriate policies.

The level of spillovers also has an impact on per capita consumption, capital, and income as well as on their growth rates. If the spillover ratio increases, per capita consumption, capital, income, and their growth rates all increase. The selection of policies by the government may affect the outcomes of the host economy. Negative impact policy may be the enforcement of IPR protection, while positive impact policy may be to improve infrastructure or to subsidize the home firm's R&D expenditures to imitate the foreign technologies.

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