Working Paper: CEPR ID: DP4085
Authors: Ai Ting Goh
Abstract: This 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.
Keywords: buyer-supplier; developing countries; knowledge diffusion; technological effort; technology transfer
JEL Codes: F23; L13; O14; O19; O32; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| upstream knowledge diffusion (O36) | technology transfer (O33) |
| cost of improving production efficiency is low (D24) | technology transfer (O33) |
| cost of engaging in technological effort is high (O33) | technology transfer (O33) |
| downstream knowledge diffusion (O36) | technology transfer (O33) |
| cost of technological effort is low (O49) | technology transfer (O33) |
| cost of improving efficiency is high (D61) | technology transfer (O33) |