Three essays on international economics: International technology transfer; domestic content protection; real exchange rate dynamics under currency substitution

The first essay (Chapter 1) provides a simple but rigorous analysis of the role of international technology transfer in the determination of long-run growth rates and steady-state welfare within a Schumpeterian framework of endogenous growth. Assuming different production technologies between trading partners (i.e., comparative advantage in manufacturing and innovation), we examine the possible pattern of trade in association with technology transfer. We then study its long-run implications for the growth and welfare for both transferor and transferee countries. In so doing, our analysis yields some important implications regarding trade restrictions as compared to free trade. This essay documents the following main results: (1) in a situation in which trade without technology transfer is characterized as the free trade equilibrium, restricted trade with licensing is growth-enhancing as compared to free trade; and (2) in another situation in which trade with foreign direct investment is characterized as the free trade equilibrium, free trade is growth-enhancing as compared to restricted trade combined with international licensing.; The second essay (Chapter 2) investigates the long-run effects of domestic content protection policy on investment, the current account, employment, and welfare in a small open economy. We adopt the representative agent model within an infinite horizon intertemporal optimizing framework. We find that more restrictive content protection policy leads to a lower level of the capital stock, an improvement in the current account, and a decrease in employment. Welfare analysis shows that content protection is welfare deteriorating in the short-run but welfare improving in the long-run as its effect on investment is spread over time, demonstrating that there exists an intertemporal tradeoff in welfare.; The third essay (Chapter 3) examines the dynamic behavior of the real exchange rate under currency substitution in a Blanchard (1985) type continuous overlapping generations model. We consider two permanent unanticipated shocks: an increase in the growth rate of domestic money supply and an increase in the rate of foreign inflation. It is shown in this essay that the dynamic adjustment of the real exchange rate depends crucially on the heterogeneity of the intergenerational wealth distribution. We find that the real exchange rate overshoots in response to an increase in the growth rate of domestic monetary expansion and undershoots in response to an increase in the rate of foreign inflation. There is a depreciation of the real exchange rate in the long-run in both cases. In addition, our analysis shows that there could be a case in which the optimal decumulation of real foreign currency is not necessarily associated with a trade balance deficit or a real appreciation when the rate of foreign inflation increases.