migration with brain drain and technology gain, tariff induced technology transfer and foreign direct investment by small firms

This thesis concerns itself with the effects of factor mobility on the economic development of geographically distinct regions. In Chapter 1, it is shown with a simple model of endogenous growth that brain drain leads to divergence of growth rates. But if return migration is introduced as a source of technology diffusion, a trade-off between brain drain and technology gain arises. Return migration leads to convergence of economic development, if the cost of remaining in the foreign country are relatively high and the transferability of technology is good. This is, because then returnees bring not only along the new technology but also high talent. In a model, where a less developed country imports high quality products and produces low quality products, there might be a trade off between imports and foreign engagement in technology transfer to the local industry. Chapter 2 shows under which conditions a tariff induces technology transfer. Two cases are considered: market integration and market segmentation in prices. In both cases there exists a tariff that induces technology transfer to the low-quality firm. The positive welfare effect of the quality upgrade is more pronounced in the second case, however, because the tariff induces a reduction in the high-quality firm's price in addition to the improvement of the local quality. A spatial model of foreign direct investment (FDI) is analysed in Chapter 3. In that framework the distance between production locations increases with the size of the market covered and therefore with firm size. If a surprise-investment-location arises close by, it attracts less investment than if it had been anticipated and mainly from firms in the vicinity. We find empirical support for our model with German industry survey data. Small investing firms go mainly to Central and Eastern Europe (CEE). Medium sized firms are dissuaded from investing in CEE, if they have already invested elsewhere. Big investing firms typically go to CEE and to the rest of the world.