Essays on political economy, foreign direct investment, and economic growth

This thesis mainly studies how the technology adoption, diffusion and choice are affected by the macroeconomic policies that are endogenously determined in the political-economic process. My analysis features the positive approach of policy determination and the explicit role of the government.;In Chapter 2, a political-macroeconomic model is developed to explain why two developing economies with the same economic fundamentals can have different de facto economic policies toward foreign direct investment (FDI henceforth), which is viewed as foreign better technology. I show how fiscal decentralization can have both a non-monotonic and dramatic impact on policies and FDI. I also show that a small difference in fiscal decentralization may translate into stark difference in the equilibrium FDI because the local government's induced preference for FDI could be endogenously polarized. Simulation and calibration results closely match China and India's macro and policy data. Counterfactual experiments suggest that the degree of fiscal decentralization can well explain the nine-fold difference in FDI per capita for China and India, although they are at the similar development stage.;In Chapter 4, I construct a growth model to explore a developing country's catching-up behavior with endogenous institutional change. The effective externality of foreign human capital is constrained by the institutional barrier variable. I characterize the Ramsey's government's optimal scheme of institutional adjustment and the associated macro dynamics. I show that institutions are adjusted for a finite number of times and each adjustment must occur precisely when the learning constraint just becomes binding; When there is no fixed adjustment cost, the adjustment size is strictly monotonic or constant over time. It implies that catching up continues until the last learning constraint binds. Implications for the transitional economy's optimal economic reforms are discussed.;Several extensions and related models are discussed in Chapters 3, 5 and 6.