Kamal Saggi

International technology transfer and the technology gap

Abstract We build a quality ladders product cycle model that explores how the quality of technology transferred through foreign direct investment (FDI) is linked to innovation and imitation when the absorptive capacity of LDCs is limited. Successful imitation of low quality levels makes FDI involving high quality levels possible through reduction of the technology gap. A subsidy to imitation or a tax on low quality FDI production encourages imitation relative to innovation, thus releasing the constraint faced by foreign firms seeking to produce in the South. These forces that stimulate high-quality FDI raise Southern welfare through lower prices, faster innovation and higher wages.

Multinational Firms and Technology Transfer

The authors construct an oligopoly model in which a multinational firm has a technology superior to those of local firms in the host country. Workers employed by the multinational acquire knowledge of the superior technology and can spread their knowledge to local firms by switching employers. The multinational chooses to pay a wage premium to prevent local firms from hiring away its workers if the local firms are sufficiently disadvantaged or if there are enough local firms. Diffusion of the superior technology benefits local firms at the expense of workers, whose wages suffer. The host government might have an incentive to attract foreign direct investment even when technology transfer will not result, because of the wage premium local employees of the multinational firm earn. Also, foreign direct investment with technology transfer may reduce the total economic rent the host country earns.

Intellectual property rights and foreign direct investment

Abstract This paper develops a product cycle model with endogenous innovation, imitation, and foreign direct investment (FDI). We use this model to determine how stronger intellectual property rights (IPR) protection in the South affects innovation, imitation and FDI. We find that stronger IPR protection keeps multinationals safer from imitation, but no more so than Northern firms. Instead, the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both FDI and innovation. The greater resources absorbed in imitation crowd out FDI. Reduced FDI then transmits resource scarcity in the South back to the North and consequently contracts innovation.

Innovation and Wage Effects of International Outsourcing

We study the role of increased outsourcing of production to a low wage country on relative wages across countries and innovation incentives. In particular, we examine the following causal forces behind an increase in the extent of international outsourcing: 1) a reduction in the resource requirement in adapting technology relative to improving products, 2) an expansion in the portion of production that can be outsourced, 3) an increase in production taxes in the North, 4) an increase in production subsidies in the South, and 5) an increase in the subsidy to adapting technologies. Each of these causal forces generates a lower relative wage and a faster rate of innovation, in addition to a greater extent of international outsourcing.

Product differentiation, process R&D, and the nature of market competition

Abstract We investigate the relationship between process and product RD (ii) Bertrand firms have a stronger incentive for product RD and (iii) cooperation in product R&D promotes both types of R&D relative to competition whereas cooperation in both types of R&D discourages R&D relative to cooperation in just product R&D.

Vertical technology transfer via international outsourcing

Abstract To analyze the effect of vertical technology transfer on industrial development in lesser developed countries (LDCs), we develop a model in which the technology transferred to an LDC supplier by a developed country (DC) importer can diffuse to other LDC firms. Surprisingly, even if such diffusion in the LDC market leads to entry into the DC market, it can benefit both the initial DC importer and its initial LDC supplier by reducing the double marginalization problem. This effect does not depend upon whether firms compete in prices or quantities and exists even when the number of entrants into each market is endogenously determined.

Inflows of Foreign Technology and Indigenous Technological Development

This paper explores the effects of inflows of foreign technology on technological development in developing countries. It evaluates the existing literature exploring this issue and indicates directions for further research. In particular, it is argued that the implications of the theory of foreign direct investment (the dominant channel of international technology transfer) for technological development have not been fully explored. Dynamic analyses of technology transfer that accommodate the salient features of developing countries have also begun to appear only recently. Further work along these lines is likely to yield rich dividends. Copyright 1997 by Blackwell Publishing Ltd

The case for industrial policy : a critical survey

What are the underlying rationales for industrial policy? Does empirical evidence support the use of industrial policy for correcting market failures that plague the process of industrialization? To address these questions, the authors provide a critical survey of the analytical literature on industrial policy. They also review some recent industry successes and argue that only a limited role was played by public interventions. Moreover, the recent ascendance of international industrial networks, which dominate the sectors in which less developed countries have in the past had considerable success, implies a further limitation on the potential role of industrial policies as traditionally understood. Overall, there appears to be little empirical support for an activist government policy even though market failures exist that can, in principle, justify the use of industrial policy.

Preferential Trade Agreements and Multilateral Tariff Cooperation

Are preferential trade agreements (PTAs) building or stumbling blocks for multilateral trade liberalization? I address this question in an infinitely repeated tariff game between three countries engaged in intraindustry trade under oligopoly. The central result is that when countries are symmetric, a free trade agreement (FTA) undermines multilateral tariff cooperation by adversely affecting the cooperation incentive of the nonmember whereas a customs union (CU) does so via its effect on the cooperation incentives of members. However, when countries are asymmetric with respect to either market size or cost, there exist circumstances where PTAs facilitate multilateral tariff cooperation.

Licensing versus direct investment: implications for economic growth

We develop a symmetric two country model of foreign direct investment (FDI) that captures the internalization decision and its implications for both the rate and magnitude of innovations. When mode choice (licensing versus FDI) is fixed, a subsidy to multinational production increases the rate but decreases the size of innovations. When mode can switch, the rate and size of innovations both increase, provided the subsidy is not too large. Although innovation size decreases for industries where firms already were choosing FDI, innovation size increases for industries where firms switch from licensing to FDI because multinationals choose larger innovations than licensors.