On the Relationship Between Technology Transfer and Economic Growth in Asian Economies

• Author: Xuan Nguyen,Munirul Nabin,Pasquale Sgro
• Published date: 01 July 2013
• Date: 01 July 2013
• DOI: http://doi.org/10.1111/twec.12049

On the Relationship Between Technology

Transfer and Economic Growth in Asian

Economies

Munirul Nabin, Xuan Nguyen and Pasquale Sgro

Deakin Graduate School of Business, Deakin University, Australia

1. INTRODUCTION

THE role of foreign direct investment (FDI) and technology transfers in promoting growth

in developing economies has been debated in the economic development literature over a

long period of time.

1

The benefits of FDI on employment, exports and capital formation are

seen as pluses, while issues such as the foreign ownership (in the case of inward FDI) or con-

trol (in the case of technology licensing) of local factors of production are seen as minuses.

The acquisition of modern technology and management skills is also seen as a major benefit

of foreign investment.

Hoekman et al. (2005) point out that, similar to FDI, licensing is an important source of

international technology transfer. Typically, licensing is a contract, which involves the pur-

chase of one or more of the following: production or distribution rights, the underlying techni-

cal information and know-how. From the point of view of foreign multinational firms, this

market-seeking investment is undertaken to serve particular markets by local production and

distribution, rather than exporting from a home country. This process manages to bypass any

trade barriers that may exist and reduces transport costs as well as making it easier for firms

to cater for country-specific tastes and needs. The decision to license, as for the FDI decision,

depends on market size, policy certainty and transparency. In addition, the licensor firms must

be confident that their technologies will not dissipate into the host economy through copying

or defection of personnel; hence, the institutional and legal frameworks must be supportive of

such activities. In the case of licensing, the use and training of domestic labour and the pres-

ence of productivity spillovers and other types of externalities make this form of investment

attractive to developing economies.

There has been some discussion on the linkage potential of FDI and licensing. Early stud-

ies have focused on the negative externalities, such as reduction in the availability of interme-

diate goods for local production as local firms move to supply the foreign plants. This is

known as the segmentation argument.

2

Other more recent studies have analysed the forward

linkage, whereby the demand for inputs (backward linkage) created by foreign technology

causes entry upstream, which, in turn, exerts downward pressure on the cost of all

We wish to thank Debdulal Mallick, Aaron Nicholas, two anonymous referees and the editor, Eden Yu, for

helpful comments.

1

Saggi (2002) and Keller (2004) provide useful surveys of this literature.

2

Some of the early debates contrast the different effects of licensing versus FDI. See for example, Beladi

and Chao (1993) and Saggi (2002).

The World Economy (2013)

doi: 10.1111/twec.12049

Ó2013 John Wiley & Sons Ltd 935

The World Economy