Hidden Costs of Technology Transfer

Global operations of Giant Firms seem to restructure the division of production and income distribution on a global scale while increasing the interdependence of nations. In this process, the FDIs seem to be the principal mechanism linking national economies, in addition to trade. But, nevertheless, there is a disturbing gap in economic welfare between the few DCs and plenty LDCs. The rate of economic growth can, no doubt, be accelerated through the transfer of technology from the vast pool of technology accumulated in the developed countries. But, there is the belief that foreign investment "if left to the prevailing market forces, would accentuate rather than alleviate some aspects of under- development: it would aggravate the inequality of social and economic relations and increase external dependence." (UNCTAD,1972,p.1) The purpose of this study is to shed some light on the “adverse” impacts of transfer of commercial technology through FDIs to LDCs. Analysis will focus more on the “hidden” costs arising from the use of restrictive clauses contained in package deals. As will be seen, there are imperfect markets for technology transfer and the transactions in technology transfer often take the form of "package deals" accompanied by explicit written or implicit and unwritten contractual clauses.