Uncertainty in Market-Mediated Technology Transfer and Geographical Diffusion: Evidence from Chinese Technology Flow

While a significant body of research has emphasized the contribution of knowledge spillover to the economic growth of a region, the distinction between knowledge types has not received the attention it deserves. Market-mediated technology transfer, compared with pure knowledge spillover, is mediated by market mechanisms that stimulate chances to identify potential partners, alleviating the spatial restraints between them. This research explores the mutual uncertainties of licensor and licensee in transferring market-mediated technology and seeks to capture the geographic incidence at prefecture-levels across China. It also tests whether the intensity of market competition imposes constraints on the licensor’s decision concerning technology transfer. The results corroborate that geographical distance still serves as a heavy toll between licensor and licensee. However, spatial proximity does not always support technology diffusion in cases where the licensors are associated with the dissipation effect among the proximate partners. The results challenge the common notion in the literature that an agglomeration effect is associated with knowledge spillover, reflecting the dynamic nature of market-oriented knowledge transfer. The contribution of this work will broaden understanding of the relationship between international/local technology diffusion and regional innovative capacity.