A little picture of the big picture on technology transfers

Technology transfers between countries occur in multiple stages. Theoretical and empirical works on the subject tend to focus on individual elements of the topic, and literature reviews on the topic tend to be large or have a limited perspective. There are a number of advantages in representing the mechanisms of technology transfer in a compact and flexible form. One is that newly discovered sub-mechanisms can be readily positioned in the overall operation. Another is that non-specialists in the field can observe the essentials of technology transfer in a moderate time.

The literature suggests links between transfers and trade, foreign direct investment, multinational companies, different forms of multinational entry, movement of workers, intellectual property rights, government policy, capital levels, and human capital levels. It has examined the transfer of individual and aggregate technologies, looking at direct measures and secondary measures such as GDP growth. It has looked at proper transfers and spillovers where the initial transfer generates new ideas.

In combining these proposed links in a single model, all knowledge movement is attributed to the profit motive, as is standard in economics. Transfers may feasibly occur due to government activity or random drift, but these are not directly modelled. The model is specified in an explicit two-stage profit maximisation form:

For technology suppliers deciding on international transfers:
Maximise: Income from transfer minus cost from transfer

For technology receivers deciding what level of foreign technology to take:
Maximise: Income using the chosen technology, subject to a maximum of available technology from the previous optimisation minus cost of using the chosen technology, subject to the maximum

The specification allows the various links suggested in the literature to be included in the model in a natural way as either parameters or optimised quantities. I won’t go into more detail in this post. I hope to come back to the theme later.