Essays on Economic Development
My thesis consists of three chapters on economic development.
The research on the catch-up process of a developing economy focuses on the role of foreign technology transfer and the importance of domestic technology transfer lacks study. We study the trends of expenditures on innovation, foreign technology transfer, and domestic technology transfer. During the transition period of China from 1998 to 2007, the expenditures on innovation and domestic technology transfer of Chinese firms in the manufacturing sector grow two times faster than the expenditure on foreign technology transfer. Furthermore, the estimated productivity at the firm level shows that rapid productivity growth is accompanied by decreasing productivity dispersion. The productivity dispersion has decreased by 39% in the same period. I document several empirical facts at the level of the industry. First, innovation is positively correlated with relative productivity. Second, the expenditure on domestic technology transfer increases in relative productivity and the growth rate of relative productivity is positively correlated to the expenditure on domestic technology transfer.
I develop a theory in which firms endogenously choose one of three mutually exclusive methods to increase productivity: innovation, foreign technology transfer, and domestic technology transfer. Domestic technology transfer offers firms with low productivity a chance to become highly productive by meeting highly productive domestic peers. Domestic technology transfer leads to faster growth of productivity and a greater number of firms with high productivity. The productivity growth in China makes more Chinese firms choose to innovate or learn from domestic peers in a dynamic environment. Thus, the expenditures on innovation and domestic technology transfer increase faster. In our model, firms with low productivity adopt foreign or domestic technology and grow faster than highly productive firms. This results in the decreasing productivity observed in the data.
We use the simulated method of moments to estimate the key parameter values of the transition model. Our model fits data well. After checking the model fit, we conduct two experiments to answer the two questions mentioned at the beginning of our talk. In one experiment, domestic technology transfer is not allowed, and I find that domestic technology transfer contributes 30% of productivity growth and 31% of relative innovation expenditure growth. In the other experiment, we improve the domestic intellectual property and the policy changes significantly reduce both productivity growth and expenditure on innovation.
Our economic geography model features cross-country productivity, human capital, amenity and population differences, international trade, migration cost, and heterogeneous working and entrepreneurial skills. We compare welfare under baseline parameterization with a migration autarky counterfactual and the welfare gains of the US native residents from migration reform. The gains from migration are substantial, as high as trade gains, and natives in countries that received a lot of migration are much better off, at about 5% to 15%. Both the native entrepreneurs and workers benefit from migration while the entrepreneurs tend to gain twice as large as the workers. The welfare of the US native entrepreneurs and workers can increase by 5.1% and 1.6% by optimizing migration frictions and the population of the US increases by 14.7% under optimization.