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Knowledge Diffusion, Supplier's Technological Effort and Technology Transfer via Vertical Relationships

Ai Ting Goh

No 4085, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: F23 L13 O14 O19 O32 O33 (search for similar items in EconPapers)
Date: 2003-10
New Economics Papers: this item is included in nep-dev, nep-ino and nep-tid
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