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The first humans developed new and better ways of production, and those around them watched and imitated. When the new and better ways became more complex, then the innovator would often teach the innovations to others. Since the beginning the transfer of technology has followed innovation. Technology is transferred from parents to children, from masters to apprentices, from teachers to students, from managers to workers, and from workers to workers. Technology spreads both horizontally (to competitors) and vertically (to suppliers and buyers) from a given innovating firm. It even spreads to seemingly unrelated industries (consider the case of the transistor that was developed for hearing aids but ended up in radios, TVs, computers, and space crafts).
However, the origin of the term technology transfer and its study as a separate phenomenon can be traced to the massive gifts of technology from the United States to Europe and Japan immediately following World War II (1939-1945). Many U.S. firms freely opened their doors so that European companies could come and study their production processes. Blueprints and patents were freely shared.
During the cold war between the United States and the Union of Soviet Socialist Republics (USSR), both sides encouraged the transfer of their technology to lesser-developed countries in order to help the recipients develop and to win allies. It was assumed that economic development required acquisition of modern technology. During the 1950s and 1960s, international organizations (such as the United Nations’ Expanded Program of Technical Assistance) and private foundations (such as the Ford and Rockefeller Foundations) were the primary conduits of international technological flows.
Many hoped that the farther a country lagged behind cutting-edge technology the more they would gain from acquiring that technology. Unfortunately this hope was misplaced. Experts discovered that countries closer to the technology frontier were better able to absorb cutting-edge technology than countries that lagged far behind. For example, countries needed reliable electricity before they could efficiently use any technology, such as computers, that was electrically driven. Furthermore, countries needed educated indigenous people who could understand both the new technology and the country’s special needs in order to modify the technology so that it could work efficiently in the new environment. In the late 1970s and 1980s, literature emerged on appropriate technology where appropriate usually meant small-scale, simpler, and often manually powered technology such as hand pumps instead of electrically driven pumps. However, this appropriate technology was not always well received because it was viewed as inferior to what the developed world used.
During the 1980s and 1990s, some hoped that multinational companies would somehow find a way of successfully taking the most advanced technologies to the poorest countries in order to get the greatest profits from closing the largest technological gaps (and from paying lower wages). Contrary to this hope, most multinationals did not set up operations in the poorest countries; instead, they set up subsidiaries in countries that were already clearly on the path to economic development. Furthermore, multinationals have a strong incentive to keep their technology from any competitors. Some of a multinational’s technology is expected to leak to competitors through migration of workers from multinational to domestically owned firms, through reverse engineering, or through industrial espionage. To minimize the risk of competitors acquiring their technology, many multinationals pay their workers significantly more than domestic firms pay (to keep workers from leaving) and do not give their best technologies to their foreign subsidiaries.
In the 1990s and early 2000s, a large literature emerged trying to estimate the relationship between foreign direct investment and growth rates of developing nations via technology spillovers. This literature assumes that technology naturally spills over the borders of a firm to neighboring firms and is plagued by problems with:
- how to measure technology,
- determining to what extent the foreign investment caused the growth or the growth attracted the foreign investment,
- modeling and estimating the interaction between domestic development of technology and the foreign technology, and
- explaining how and why the spillover effect occurs, especially because the firm has a strong profit motive to stop it.
The policy implication of many of these studies is that governments of lesser developed nations should actively encourage foreign direct investment. However, the problems listed above may invalidate that conclusion. Furthermore, this literature tends to consider only the positive effects of foreign direct investment and ignore potentially negative effects such as dependency, loss of sovereignty, increased corruption, disruption of native culture, and risk of capital flight, which can cause financial crises such as the one that swept Asia in 1997-1998.
Bibliography:
- Fan, Emma Xiaoqin. 2002. Technology Spillovers from Foreign Direct Investment—A Survey. Manila: Asian Development Bank.
- Keller, Wolfgang. 2004. International Technology Diffusion.Journal of Economic Literature 42 (3): 752–782.
- Saggi, Kamal. 2002. Trade, Foreign Direct Investment, and International Technology Transfer: A Survey. World Bank Research Observer 17 (2): 191–235.
- Seely, Bruce E. 2003. Historical Patterns in the Scholarship of Technology Transfer. Comparative Technology Transfer and Society 1 (1): 7–48.
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