abstract: This dissertation consists of two essays that deal with the development of open developing economies. These economies have experienced drastic divergence in terms of economic growth from the 1970s through the 2010s. One important feature of those countries that have lagged behind is their failure to build up their domestic innovation capacity. Abstract The first chapter discusses the policies that may have an impact on the long-run innovation capacity of developing economies. The existing literature emphasizes that the backward linkage of foreign-owned firms is a key to determining whether FDI is beneficial or detrimental to a domestic economy. However, little empirical evidence has shown which aspects of FDI policies lead to a strong backward linkage between foreign-owned and domestic firms. This paper focuses on the foreign ownership structure of these foreign-owned firms. I show that joint ventures (i.e, firms with 1%-99% foreign share) have stronger backward linkages than MNC affiliates (i.e, firms with 100% foreign share) with domestic firms. I also find that the differences in backward linkages are strong enough to translate into a positive correlation between domestic innovation and the density of joint ventures and a negative correlation between domestic innovation and the density of MNC affiliates. Finally, I find that the channel through which foreign ownership structure affects domestic innovation raises innovation TFP in domestic firms. My results suggest that policies that affect the foreign ownership structure of foreign-owned firms could have a persistent effect on domestic innovation because they shift the comparative advantage of an developing economy towards the innovation sector in the long run. Abstract The second chapter provides a unified theory to study what causes the divergence in economic growth of developing economies and how the innovation sector emerges in the developing countries. I show that open developing economies become trapped at the middle-income level because they tend not to specialize in sectors that generate spillover or factor accumulation (the innovation sector). Using a dynamic Heckscher-Ohlin (H-O) model, I show that the fast growth of developing economies tends to end before they can fully catch up with the developed world, and the innovation sector will not operate in the developing countries. However, the successful growth stories of Korea and Taiwan challenge this view. In order to explore the economic miracle that happened in Korea and Taiwan, I generalize a dynamic Heckscher-Ohlin (H-O) model by introducing technology adoption and explore how it generates spillovers to domestic innovation. I show that countries with policies that encourage technology adoption will benefit most from FDI: in addition to the fact that foreign technology raises productivity in the host country, the demand for skilled labor to adopt these technologies raises the education level in equilibrium, which benefits domestic innovation and leads to catch-up in the long run. / Dissertation/Thesis / Doctoral Dissertation Economics 2015

Middle class is important for economic development and growth of a country. Nowadays middle class in asian countries like China, Vietnam or India is significantly growing. Middle class in China has started to develop after economic reforms, which were launched in 1980s. People belonging to middle class in China are concentrated in urban area. Originally it started to develop in the coastal part of the country. There is a trend to move also to the inner part of the country. The biggest potential of the middle class is boosting domestic consumption. On the other hand there are certain problems, which might lead to middle income trap. The main problems are low productivity, high disparity, pressures on environment or aging population. The government is making a lot of measures to solve this problém. Nevertheless these problems are long term and they must focus on them in the future too.

Since the beginning of the millennium, Southeast Asia has become one of the fastest growing regions in the world. After recovery from the slowdown caused by the Asian financial crisis, most of them achieved significant growth and Asian miracle was created. Thanks to the liberalization of trade, export supporting policies, cheap labour and foreign investment, many of the southeast Asian countries entered the middle income countries group, which the World Bank defines with the Gross National Income per capita in the range from 1 045 USD to 12 760 USD. However, some countries in Southeast Asia are experiencing economic slowdown now and some of them fell into so called middle income trap. It is an economic phenomenon, which describes the situation when the country is no longer able to use its comparative advantages in the form of labour intensive production and its economic growth stagnates. Such economies find themselves on the edge between poor countries with cheap labour and advanced economies with high income. The main goal of the diploma thesis is to examine the topic of middle-income trap on chosen economies of Southeast Asia - Malaysia, Indonesia and Vietnam. The thesis is focused on the evaluation of their economic situation, the depth of the middle income trap and possible solutions for each of these countries.

The thesis is focused on issue of the middle income trap and its application on Chinese market. Thesis is divided into three parts. The first chapter deals with concept of "middle income trap" and defines its causes. The second chapter analyses current situation of Chinese economy, also selected problems and trends in economy whitch are related to middle income trap. The goal of the last part is to answer questions whether China is in the middle income trap or manage to escape.

The middle-income trap (MIT) theory has gained popularity amongst policy makers looking to avoid the trap since it first arose in 2005. Multiple studies discuss the possible existence of the trap, what it is caused by and what possible solutions it might have. We use the empirical definition of the trap presented by Aiyar et al. (2018) to test for the middle-income trap in order to analyze the effect that international trade, defined by import and export, may have on the MIT. The Arellano-Bond estimator and random-effects probit model are used on data from the Penn World Data Table 9.1 to carry out this investigation. Based on our dataset we generate results slowdowns that give evidence to the MIT and find that import has a negative effect on a country’s risk of landing in an MIT whereas export has a positive effect on the risk.