Some reasons why capital does not flow from rich to poor countries

Abstract

This paper introduces endogenous adoption costs for productive assets in a Ramsey type growth model with international capital flows. There are two c1asses of productive assets: owner-specific and location-specific. Adoption costs are an increasing function of the level of technology embodied in the investor's owner-specific assets and a dec1ining function of the host country's location-specific assets. In this setting the return to capital is low in capital-poor countries. Consequently, they receive small amounts of foreign investments. Further, even though capital flows from North are spread evenly across industries in the South, the relative importance of high-technology industries is small in terms of output.