Knowledge Diffusion, Supplier's Technological Effort and Technology Transfer via Vertical Relationships
AbstractThis Paper studies the effect of knowledge diffusion on the incentives for developed countries’ (DC) firms to undertake costly transfer of production knowledge of an input to their developing countries’ (LDC) suppliers whose costs of production vary inversely with their technological effort. We distinguish between upstream knowledge diffusion, which occurs when the technology diffuses to other suppliers not directly engaged in the technology transfer process, and downstream knowledge diffusion, which occurs when other buyers learn from the incumbent DC firm to procure the same input from the trained LDC supplier(s). We show that when the cost of improving production efficiency is high, and hence where the incentive for technological effort is low, technology transfer is encouraged (discouraged) by upstream (downstream) knowledge diffusion. When, however, the cost of engaging in technological effort is low, and hence where technological effort has a significant impact on the input price, the opposite results obtain: upstream knowledge diffusion discourages technology transfer as increased competition reduces the incumbent supplier’s incentive to undertake technological effort thus lowering the value of technology transfer for the DC firm. Downstream knowledge diffusion encourages technology transfer by increasing the demand for the supplier’s product and hence the technological effort undertaken.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4085.
Date of creation: Oct 2003
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Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-29 (All new papers)
- NEP-DEV-2004-02-29 (Development)
- NEP-INO-2004-02-29 (Innovation)
- NEP-TID-2004-02-29 (Technology & Industrial Dynamics)
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