Gains from capital account liberalisation could also come from better utilisation of
available domestic savings rather than from net inflows of foreign savings. This
channel highlights the role of gross capital flows. These benefits are typically
associated with foreign direct investment, but could also arise with other types of
capital flows. For example, foreign investment could increase competition in the
host economy, thereby making domestic firms more efficient. It could also lead to transfers of technology and/or skills. Wang (1990) develops a model in which
technology is assumed to be transferred via international capital movements from
the developed North to the developing South. The rate of technological change is
an increasing function of the amount of foreign capital operating in the South and
of the extent to which technology in the advanced country exceeds that in the less
developed country. It is shown that when the South shifts from autarky to free
capital mobility, its steady state growth rate of per capita income also increases