Economic growth, trade policy and foreign direct investment
While openness enables countries to keep pace with the most advanced state-of-the-art knowledge, technology transfers among innovators in different countries facilitate the motivation of research and development and the spread of new knowledge and skills. Rapid technological innovations also motivate trade and international capital flows and speed up the integration process of the world economy. The thesis concentrates on two areas within these ongoing investigations; namely Trade Policy and Foreign Direct Investment (FDI), within the wider discussions of the newly developed models in the theory of Economic Growth, styled "endogenous growth theory" Based on the models of new growth theory, namely Romer (1987,1990, 1994), Barro and Sala-i-Martin (1995, Chapter 4,6, and 7), Aghion and Howitt (1992) and Grossman and Helpman (1992, Chapter 4 and 11), this thesis first focuses on the mechanism through which trade restrictions affect the welfare of a developing country. In Chapter 2, the comparison of the welfare effects of two of the most commonly used trade policies, tariff and voluntary export restriction (VER) is presented. It shows counter-intuitively that a VER may be superior to a tariff. Second, this thesis focuses on the mechanism illustrating the interaction of imitation, FDI, and economic growth rate of a developing country. Chapter 3 constructs a model which detects the interrelationships between FDI, innovation, imitation and the long-run growth rate. One of the major findings is that governmental policies to promote local technology activities do not necessarily improve the relative condition of labour in the policy-active country. Finally, in Chapter 4, this thesis also examines the empirical evidences of the effect of FDI upon the growth of a developing country's economy based on a recent growth model. The Taiwanese economy (1953-1995) is used as an empirical case study. The results show that FDI did play an important role in the manufacturing industry of Taiwan.