This paper presents a fully specified model of long-run growth in which knowledge is assumed to be an input in production that has increasing marginal productivity. It is essentially a competitive equilibrium model with endogenous technological change. In contrast to models based on diminishing returns, growth rates can be increasing over time, the effects of small disturbances can be amplified by the actions of private agents, and large countries may always grow faster than small countries. Long-run evidence is offered in support of the empirical relevance of these possibilities.

/pdf/increasing-returns-and-long-run-growth-1wijc940aq.pdf

Increasing Returns and Long-Run Growth

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

/pdf/endogenous-technological-change-4yzdlw043b.pdf

Endogenous Technological Change

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w3210.pdf?abstractid=226703&mirid=1

https://www.nber.org/system/files/working_papers/w5057/w5057.pdf

How does foreign direct investment affect economic growth

This article reviews some of the criticisms directed towards the eclectic paradigm of international production over the past decade, and restates its main tenets. The second part of the article considers a number of possible extensions of the paradigm and concludes by asserting that it remains “a robust general framework for explaining and analysing not only the economic rationale of economic production but many organisational and impact issues in relation to MNE activity as well.”

/pdf/the-eclectic-paradigm-of-international-production-a-3rjvhoi2d0.pdf

The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions

For over a quarter century, the Heck-scher-Ohlin-Samuelson (H-O-S) trade model has thoroughly dominated work in the pure theory of international trade. Indeed this model is often identified as “the” modern theory of trade. But this dominance has always been rendered uneasy by a widespread suspicion that the salient facts of modern commerce are inconsistent with the theoretical structure. Two broad areas of suspicion may be identified…

National and International Returns to Scale in the Modern Theory of International Trade

Direct investment is incorporated into a simple general equilibrium model of international trade. The analysis focuses on an attempt to endogenize the internalization decision. It is argued that a reasonable approach assumes that arm's length contracts must be "simple" so that "complex" arrangements require internalization. The model relates direct investment to the degree of underlying uncertainty and to fundamental trade determinants, such as relative factor endowments. The behavior of the model contrasts sharply with that of the Markusen-Helpman model, which takes internalization for granted.

https://www.jstor.org/stable/pdfplus/1884179.pdf

The Multinational Firm

Once again, regionalism is afoot. Twin late-1980s announcements, by the United States and Canada of negotiations for a free-trade area, and by the EU of an attempt to complete its internal market, ignited a conflagration of regional integration. Well over a hundred regional arrangements, involving most nations, now exist. Deja vu: the 1950s and 1960s had likewise witnessed many ‘old regionalism’ initiatives. Except for Western Europe, these in the end amounted to little, however, and efforts for preferential trade became quiescent, until the dramatic advent of the ‘new regionalism’.

https://www.jstor.org/stable/pdf/2565673.pdf

The New Regionalism

Empirical evidence indicates a close association between multinational firms and knowledge capital, a public good within the firm We model a firm which wishes to exploit its knowledge capital abroad, but whose workers learn all the knowledge necessary for production and can defect and produce the good themselves The home firm must then choose between costly exporting and the possible dissipation of its knowledge capital by producing abroad The paper examines the choice between exporting, licensing, and acquiring a subsidiary in this environment We analyze the cost and technology parameters that support the alternative modes of serving the foreign market, and we describe the international equilibrium that jointly determines the pattern of specialization and the market mode(This abstract was borrowed from another version of this item)

Multinational Firms, Technology Diffusion and Trade

https://www.jstor.org/stable/info/1914383

Wilfred J. Ethier

Papers

National and International Returns to Scale in the Modern Theory of International Trade

The Multinational Firm

The New Regionalism

Multinational Firms, Technology Diffusion and Trade

International Trade and the Forward Exchange Market