Technology Transfer, Foreign Direct Investment and International Trade

By developing a Ricardian trade model that features technology transfer via foreign direct investment (FDI), we show that technology transfer via multinational enterprises (MNEs) increases world output and trade in goods and services. When there are many goods a continuous reduction in the cost of technology transfer will cause increasingly more technologically advanced goods to go through the product cycle, i.e., goods initially produced in the advanced North are later produced in the backward South as a result of increased technology transfer via MNEs. * The authors would like to thank Henry Wan, Jr., Kar-yiu Wong, discussants at the Far Eastern Meeting of the Econometric Society 1999 in Singapore, 1-3 July 1999, and colleagues at the Hong Kong University of Science and Technology for their helpful comments and suggestions. ✝ Email address: [email protected].