Abstract

This paper studies the relationships between imports of technologically advanced intermediate goods, technology transfers, and economic development in a small open economy, within an endogenous growth framework with R&D. The model describes a small NIC that exports a final consumption good and imports technologically advanced intermediate goods, enjoying international knowledge spillovers directly proportional to the imports/output ratio. Starting from a situation in which the local knowledge stock is lower than the one available abroad, the model initially presents a higher growth rate than the foreign one, featuring a cath-up in the long run: during the transition, resources flow gradually from the R&D sector to the consumption good sector. These features may help explaining the Asian NICs growth experience: in particular, the model's dynamic behaviour of technological progress and sectoral resource allocation may justify their spectacular growth rates and their propensity to invest in the accumulation of technological capabilities.