Foreign Knowledge for Economic Growth: Channels and Forms

Abstract

In this thesis, I analyze empirically whether foreign knowledge has helped raise growth in developed and developing countries. Using national data for a panel of 80 countries between 1960 and 2010, I examine the role of knowledge in fostering growth by investigating two important dimensions of knowledge: the ‘form’ it takes; and, the ‘channel’ through which it is conveyed. I uncover that foreign equipment and machinery conveys Codified-Knowledge while FDI conveys Tacit- Knowledge. And, because the form of knowledge transfer through machinery is different from that through FDI, I establish that these two possibilities have varied advantages that depend on the conditions of the receiving countries. I show that Equipment and Machinery Imports are more often associated with higher GDP growth in developed economies, like those of the OECD countries, while FDI is more often associated with higher GDP growth in developing economies, like those of the Non-OECD countries. Moreover, I exploit a time variation across the period of 1960 to 2010 to give clarity to the changing dynamics of knowledge forms and channels. In doing so I establish that over these years the growth benefits of knowledge and education have eclipsed those of physical capital investment. Furthermore, I supply evidence which suggests that as economies transition from developing to developed, they should prepare to transition away from a reliance on FDI to one on foreign equipment and machinery.