MARKETS, EXTERNALITIES, AND THE DYNAMIC GAINS OF OPENNESS
构建模型分析外国企业进入决策与国内企业投资自身技术的激励，发现只有市场交易主导思想扩散时，开放才能让发展中国家完全追赶，外部性不足以实现追赶甚至可能导致福利损失。
Abstract Inflows of foreign knowledge are key for developing countries to catch up with the world technology frontier. I construct a model to analyze the entry decisions of foreign firms and the incentives of domestic firms to invest in their own know‐how, given the exposure to foreign ideas and competition. The model embeds two diffusion mechanisms typically considered separately in the literature: externalities and markets. I find that openness allows developing countries to fully catch up only when market transactions dominate the diffusion of ideas. Externalities are never enough to catch up and may lead to losses in income and welfare.