[ Ch10 Material ] The Rate of Return to Investment Depends Jointly on the Capital Stock, Other Factors, and Technology. Case II : Technological Progress
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Case II: Technological Progress
Reason: Existing workers (L1 ) have more technology to work with in producing additional output (from YBto YC .)
The Schumpeterian R&D model is used to explain how international
investment might be expected to contribute to technological progress. One of
the big issues is whether international investment facilitates the flow of
technology from one country to another. There is some evidence that foreign
direct investment (FDI) indeed does that, although the precise ways in which it
transfers technology are still a very active area of research. The linkages between
other forms of international investment and technology are even less
q = f( π, r, R, β ).
Example: RUS =RUK + E(St+1) - St/ St
Portfolio investment is another of the very largest categories of
international investment. This category’s recent rapid growth, has
largely been due to the widespread establishment of stock and bond
markets throughout the world.
Portfolio investment consists of purchases and sales of securities, such as
bonds and stocks, in amounts that do not imply any direct management
control or influence on the businesses issuing the securities.
NOTE: The term euro-currency is misleading because it seems to imply that such markets are located in Europe! In reality, any currency market is so designated provided the currency is outside the country of origin. Thus, we have euro-yen, euro-pound, eurodollar, and euro-rand markets outside Japan, UK, US, and South Africa respectively.