The Technology Transfer Issue

Technology has always been an important issue in international trade theory. Ricardo based his theory of comparative advantage on the existence of ‘relative’ technological differences among trading partners. The neoclassical model, with its taxonomy of goods, factors and production functions provides the analytical basis for the modern version of the Heckscher–Ohlin theory of comparative advantage and also a convenient framework with which to analyse the effects of exogenous technical change on trade patterns, terms of trade and functional distribution of income, a task which mostly preoccupied trade theorists during the 1950s and 1960s. In spite of the early recognition given to technological differences and technological change, it is fair to say that the main focus of theoretical analysis has been the study of trade in either goods or factors of production. Only in recent years have theoretical models been developed which study ‘technology transfer’, which is the process through which the ‘superior’ technological knowledge of one trading partner is ‘moved’ to the geographical location of the other partners. The term ‘transfer’ as applied to the above process is probably misleading since it is consistently being used, both in the popular and scientific literature, in reference to such diverse situations as the receiving country purchasing the technology, renting it through royalty payments, receiving it free, imitating it or simply allowing foreign firms to produce within its borders with the superior technology.