The export of technology

THE EXPORT

OF TECHNOLOGY

Eitan Berglas University

of Tel-Aviv and

Ronald

W. Jones

University Almost

two

the importance growth,

decades

economists

still

The frustration

in simple

and

speed

general

and form

of technology. forms

that

technical

knowledge or kept

following

two

technological

if applicable

in local sections

can be located

model

is a general detail.

appendix, special

undertaken of

may

a private

Section

ways

II explores

features

capable

and conclusions of optimal

wanting

(multinational)

controlling

is bound

up with labor skills. We describe immediately

with

the

fact

a model

applicable

159

that

much

in which to countries

that

income

quantity

this The

depth

of

to the

in the text.

policies

national the

results

there).

relegated

are discussed

to maximize

the

some

has been

restrictive

The

in which

new technology;

of expressing

of this model

in

be sold

investment.

main

not produced

III is concerned are not

foreign two

(although

Section country

the

can either

countries

exports. in one

of direct

detail

the

the kind of

can be packaged

countries,

the

model,

the

of this

between

briefly

embodies

is a comparison sector

by the distinction I, we discuss

be embodied.

analysis

of new

in the export

completely

equilibrium

by a government

involved

New knowledge

by means

in other

The formal

issues

to other

in more

capital

but its main interest

control discuss

in which

capital structural

In section

is disembodied.

creation

in explaining

and welfare.

is provided

that

the

difficult

of capturing

and the consequences

of the

take.

which,

superiority

of a model

distribution,

suggesting of American

change

still remain

of technology,

focus

may

affecting

problems

on some

The primary

of technical

key variables many

income

such export

a set of blueprints, abroad

the

However,

concentrates

study

the trend

in large part from the difficulties

of the diffusion

paper

pioneering

in explaining

the phenomenon

stems

spread on trade patterns,

(1957)

progress

find

form

de novo.

This

Solow’s

of technological

to model. technologies

after

of Rochester

Of

would

of

technology

new

technology

technical

be

with that

advances

at earlier

stages

of

development,

but

implementation, in

section

become

so

international

at

flows

IV,

with

several

We have

made

no

a later of

related

stage

skilled

issues

and

labor.

require,

The

concerned

for

paper

with

their

concludes,

the

export

of

technology. literature,

much

progress,

attempt

of which

or is concerned

multinational

corporations

in this

either

ignores

more

than

The

Heckscher-Ohlin

international

This does not require

techniques;

capital-poor

they

each

model any

have

preclude new

(or made incomes,

of the

1950s

example, that

knowledge created

(they

fall); or on the volume An earlier in their climate

branch

income

or labor

be traded

worsen); of trade?

skills).

directly,

the consequences of commodity

more

Nor does

this

instead

that

and

immediately

this restriction

it is still

disturb

patterns,

trading

Much of the trade literature

labor-saving export

these

questions.

technological sector

For

progress

on the country’s (it may

actually

expands).’

trade

of comparative

Although

adopt

It requires

to precisely

country’s

same

even though

function.

on its level of real income? (it probably

knowledge

countries,

Within

theory

the

using the same to

is costlessly

distribution.

share

choose

knowledge

of Hicksian

of international

of the doctrine

technological

country

1960s was devoted

to a labor-abundant

of trade?

development

one

of

regions.

in the

all

commodities

change.

to all countries.

what is the consequence

is confined

terms

early

models

production

in technological

and internal

major

than do capital-rich

in

the

of technical

the peculiarities

countries

deliberately

of technological

available)

and

the

that

of a common

analysis

to ask how changes

national

of

may

combinations

the

or survey

aspects

PROGRESS

them to produce

countries

knowledge

available possible

TECHNICAL

model--one

technology.

factor

appraise

we wish to be with

economics--presupposes

labor-intensive

to

or with the special plight of underdeveloped

I. DISEMBODIED

of

paper

the international

(whether this theory

or indirectly

in the form

of differences

in technology

theory, costs,

associated allowed

disembodied

with Ricardo’s

countries

to differ

or as a function

of

did not allow this technology

to

of international could

be viewed

factor

mobility,

in the pattern

trade.

IFor early references see Harry G. Johnson (1968) or I3ndlay and Grubert (1959). A summary statement is found in Jones (1970). Often this literature analyzes the case of technical change in just one country, but the results are quite similar.

160

If technical until

sold,

knowledge would

basis foreign

licensing

abroad.

It has often Several

The home

to exploit

foreigners. could

investment

than

disembodied,

might

The producing

a new

the

information. monopoly.

its

natural

producing

at competitive

maximizes

its profits

of the

new

joint

possession.2

In other

firm as much

This argument costs

would

though

than

knowledge foreign

favoring

that

may prove

knowledge

would

to all producers

is worth

disappear a commodity

in this situation

firm would

no

for

creates

a

firm

intention

of

at a level of output -and turns over all do better to retain

not afford

to the home

is

process

to pay to obtain

has

to produce

firm could

commodity

is sold, the home

firm

of this good

home

the foreign

the

be willing

foreign

it chooses

foreign

for two reasons.

of the

possession

if the

would

is completely

investment

a secret

level of monopoly

of producing

Even

to the argument

But, once the technology

as the technology

alter the profit-maximizing

technology

involves

the technology-the words,

productive

to argue that these skills in turn

is that

foreigners

foreign through

or skilled labor,

in which

Even

profits

more

form.

on the notion

of market

levels--unless

to purchase

direct

of technology

so that

Presumably

the technological

why

as the channel

management

sales of technology

kind

commodity

loses

markets.

superior

here

the knowledge

monopoly.

explain

the

do occur,

in complementary

for technological made

foreign

concerns

Suppose

Is there

Even

argument

than direct

first

produced.

lowers

possess

but

is the more frequent

sale abroad partly,

advantages

abroad.

this?

the

more profitable

that

if only

patents

for production

sales of technology

to

This

of fees or

be kept

directly

Some of these are based explicitly

the

out”

recognized

might

investment

But, if this is the case, it is possible

be “hired

natural

secret

proposed

exists.

by payment

resources

that although

to a direct

embodied,

country

except

the

foreign

foreign

been

is exported. being

able

have

be preferred

technology

better

through

reasons

may

of technology factors.

been observed

of technology

investment

hire

by its owner

in technology

Internationally

technology

Alternatively, might

or kept secret

trade

in several forms.

devices.

of the knowledge

an export

profitable

use of the

owners

which

can be appropriated

for mutually

can be exported

prevent

through

knowledge

the

to pay the home

firm because

it would

output.

if the superior

technological

that

is sold worldwide

there

may be relatively

knowledge

in competitive little

danger

of

2 Thas presupposes that production costs abroad offer an advantage to producing abroad. Otherwise, it would pay the home country to keep its technology and supply the foreign market directly by exports instead of foreign investment. Of course, tariffs could alter this choice by providing a protected market.

161

“spoiling refrain

the market,”

the home

firm possessing

from selling it if the potential

as much

as the

technology returns.

of the new the value

technology

fomls

of capital

returns

to them

directly.

thus

create

its own

plants

at home. new

one with

If interest

than

rates

facilities

A variation

of this

technological

a shorter

political

uncertainty,

In this case again, the technological public

agency than to the home The

danger

arguments. adopt

foreign

firm because than

for

incorporates

the

technology

foreign

risk

of

requires

export

are higher may not

pay the home

or, alternatively, has

dealing

be sold

country

to export

a private

with

abroad,

of the value to the

firm

a public

by the private

for example,

or forthcoming

to from

at home,

agency

that possessed

abroad,

home

firm

elections.

may be worth

less to the foreign

would

to

firm.

may prove We turn

expropriation

the

fall short technology

serve

these

abroad

that

may loom larger for the home now

and

of

counter

facilities

to be less than their value to a

of expropriation

firm.3

rates)

firm of its production

technology

the danger

the

the value

expropriation

to the home

the new low-cost

foreign firm

of

The value

of future

to yield

knowledge

private

A superior

to the present

argument

than

firm.

not pay

a stream

it would

knowledge,

time horizon

domestic

why

abroad

might

or would

it yields

would

reason

technology

cannot

(or discount

sell the technology,

production

of local

to the

back

a second

the superior

producer

in that

of the new knowledge providing

Rather

possessing

are capitalized

technology.

firm.

because

of the

is like other These

home

value

foreign

the

capital

to

discuss

notion

a model

that

equipment

the

which

which

export

of

might

be

expropriated. II. TECHNOLOGY Suppose combined Specifically, Each

internationally. embodies world

a unit

home

is as productive labor.

a unit

with

capital

of

any

country’s The is type-l

machines

labor most

force natural

is that capital

IN CAPITAL

embodies kind

technology

of labor,

labor is homogeneous, on home

technology

there

of

EMBODIED

and foreign

as would is perfectly

mobile

and type-2

specific. capital.

that,

is invariant.

quantity

internally,

to make Thus, Home

sense

the

labor (also homogeneous)

be the same

assumption

it is sector

in

its productivity

about

of home

but immobile capital

which

in a two-commodity

capital

of either

type

is

3 It IS not always the case that a government is more likely to take over foreip firms than local domestic ones. Socialist economies may allow foreign firms a measure of freedom denied IocaIly to their own nationals.

162

assumed

to embody

(of comparable

technology

In such a world, of

capital

suppose

type-2

can locate

of the lower

capital

that

is immobile

real wages assumed

technology.

between

some of its type-l

basic

concern

here

and how

changes

in the commodity

levels.

something

about

income.

these

capital

to prevail

the

capital

with the export

To keep

countries. abroad

matters

4 However.

simple, the home

in order to take advantage

in the (technologically)

Despite

is static.

terms

feedback

the

Ignoring

focus

from

country’s

but its location

and capital

backward

The superiority combinations

as the productive

(“advanced”)

to produce

both

technologies

factor

that

embodies The model

all incomes

in which

It is fixed in overall

superior

home

the first commodity abroad

in Figure

the first commodity.

foreign

on the

levels of real

we assume

is illustrated

labor and foreign

in the

are employed

labor ensures

exports

national

to say

are

location s~pply,~

considerations.

1. The “B” label suggests region

region

labor

capital

tax-

we are allowed

of the Solow type?

of machines.

risk, by

in government

in technology

accumulation,

for producing

of foreign

“backward”

eign

stock

of home

one unit of commodity

model

and on overall

upon the following

of the two unit isoquants

and by changes

model

of technology toward

This frees us to ask about the equilibrium

type-l

depends

volume

in attitudes

a change

on capital

invested.

equilibrium

equilibrium

in each country

growth

and none

of the home

the

of trade,

this is not a “vintage-capital”

consumed

shows

the

by changes

in a general

of income

technology,

is with

are affected

Furthermore,

distribution

foreign

is synonymous

in foreign

country. The

to

of technology

embodying

exports tariff

to that found

the export

equipment

country foreign

that is superior

type).

1 by a comparison The “B” isoquant

type- 1 capital that these

country,

that can produce techniques

as opposed

belong

to the

“A”

capital (Ki)

is combined

with for-

by advanced

techniques.

Suppose

and that the mobility

of homogeneous

that each region pays the same real wage.7 The inverse of

4llus,

and the assumption of home superiority throughout, rules out the possibility of two-way trade in technology (and capital). For an interesting discussion of such hvoway trade, see Caves (1971).

5

See Solow (1960). The next section discusses the “vintage” issue in connection with labor.

6 So, also, we assume a fried quantity of specific type-2 capital in each country, as well as the foreign country’s own (inferior) type-l capital. 7

FmdLay (1976) assumes that foreign investors pay a higher wage than do local fms. possibility.

163

We abstract from this

P ital

F

’f L

c

Labor W* Figure 1. Advanced

and Backward

164

Technologies

pT this real wage (-J

is shown

by distance

OF. From point

F two factor-cost

lines

W

are drawn,

showing

technology)

and

capital

is shown

backward

sectors, in home

Whereas

in producing

thus,

earns

that

to capital

earned

by this same

motivated

the export

is at C and the combination at C*. two points technology in the

foreign

backward

frontier. return

the

region

At the foreign to foreign

capital

is at a technological with home paid labor

capital

type-l

return

capital

of technology. returns

frontier

sector

1. Not drawn

superior

foreign

lie below

real wage

(w*)

it could

pT than to home capital

used abroad,

(rrA/pT)

can

‘1

sector

abroad

by the home

country’s

is the factor-price

frontier

is

the first commodity

the advanced

technology

cut at D (showing

at home)

in producing

type-l

technology

abroad

in producing

It would

capital

embodies

in the advanced

determined

used

abroad

to home

(). Indeed, this p1 The high-wage home country

abroad.

located

of and

technology

return

does

at home

technology

than does home

type

that if the real wage is lower

commodity

disadvantage

than

for the advanced

of capital

of factor

advanced

of rental

abroad

in the advanced type

to each

(rfB).8

frontier

on the common

for producing

from

of

in the excess

shows

G (for the advanced

return

OM and ON for the advanced

home

2, the factor-price

earned

discrepancy

that

The

superiority

a higher

the first commodity

the real return

derived

The

is reflected

1 shows

Figure

and,

in Figure

exceed

of distances

respectively. machines

points

techniques).

(‘?A) over that to foreign machines

technology capital,

production

backward

by the inverse

embodied machines

minimum-unit-cost H (for

a lower

or at E. Foreign

the first commodity

capital

compared

(D and E lie below C*), but works with lowerat home,

and thus may end up earning more

than rl/p 1 (as at E).9 Real embodies

wages the

are lower

superior

any of this capital

abroad.

technology

If, as we assume, and

can be shipped

remain at home if r:A exceeds

abroad,

r I? Taxes provide

8w e have also illustrated the advanced sector as adopting more capital-intensive the backward sector (at H), but this is not a necessary requirement. 9 We assume commodity

sector

l-type why

capital should

one possible

techniques (at G) than does

2 is always freely traded so that p2 and pt (the foreign price) are always the same.

However, trade taxes could cause p1 and p; to diverge. Nonetheless, we assume that the return earned by home capital invested abroad, ‘IA, exceeds the borne return, r,, as well as that r;*/p; shown in Figure 2.

165

exceeds rI/pI, as

return

r*

to

II t

7

W*

W

P;”

F; Figure

2.

Advanced Technology: Factor - Price Frontier

real wage

answer:

perhaps

a tax imposed

located

abroad,

at rate t, brings n+, private

rl.

This suggests

the attraction that

the notion

to home

tax structures

owners

of

of home

capital r

labor

abroad,

foreign

investment

investment.

expropriation

the

increasingly

irritating

on the vertical is required

to returns greater

the

axis (as drawn)

Thr

advantage

outweigh

offered

of alien

or from a higher

this is not

the case in order

whereby

commodity

1 is produced

technology

must

equate

shows

one

commodity on the

the

the

prices,

technologies

is shown

world,

after-tax

plus

wipe out

causing

two

foreign

different return. (Figure

the ratio of returns and

the

quantity

by the downward-sloping

by the returns

axis the extent the increased

of

fear of

(which

of foreign

activity

foreign

becomes premium

volume

rFA(l-t)

to capital

with

to be used

This

At given terms

f(Ki)

tax rates

in the two countries capital.

abroad.

where

for given

the

technology

to f(Ki)rl,

of exported

TT schedule.

1 is

the intermediate

countries,

of exported

3). But,

could

in the backward

to examine in both

labor

for commodity

production

techniques

the equilibrium

risk premium

is captured

if some positive

cheapness

&l productive

We assume of

home abroad.

rises as the amount

abroad

point

region.)

III a competitive

that

invest

takes place.

by the relative not

reflect

capital

abroad,

export

need

to

lo The RR curve could start at unity

located possibility

(This

order

and the horizontal

nationals).

so that

the possibility

assume

This behavior

foreign investment

the risk premium

in

with

to offset

axis shows the ratio of after-tax

at home size

We reject

instead,

slope of RR could

to foreign

in order that 9

abroad.

KA, * increases.

The positive

of home capital

precisely

per unit of capital

rising RR curve in Figure 3. The vertical on foreign

designed

and,

premium

of the premium

invested

tax,”

tailored

risk

on earnings

returns, rrA( l-t), into equality

scientific

of cheap

demand

the extent

capital

of a

are so carefully

capital

Furthermore,

by the home country

and

depends

relationship of trade,

an

increase in technolob7/ exports drives down the return to capital invested abroad, * rl A, and raises r1 at home. Thus, in Figure 3, point F shows the equilibrium export

of technology. A change

schedule

in commodity

and thus affect

So also, a lowering

prices

rates of return

of the risk premium

or in the tax rate would and the quantity would

shift

of technology

shift the RR schedule

the TT exports.

clockwise

10 Various kinds of risk could be considered. The detailed analysis in the appendix presupposes that each extra unit of capital invested abroad is more in danger of expropriation than preceding units, but that the act of investing that extra unit of capital abroad does not increase the perceived risk of expropriation of the earlier units. A polar alternative is the case in which an increase in investment abroad increases the risk on a alien capital located abroad. That is, the foreign country is thought to be more likely to expropriate the entire alien capital stock, with no adjustment in any payment for the size of the stock. This case involves externalities, and the analysis of the risk premium is more complicated than that provided in the appendix.

167

r;,(H)

‘I

L

0

Figure The Equilibrium

Export

168

3. of Technology

and encourage

technology Ki

exports.

diminish,

so that

advanced

technology

have

appendix

provides

expands.

To probe

What

on

more

effect

does

incomes

in the

a formal

analysis

assuming

competitive

deeply, this

two

suppose

increase

countries

risks do

in exports and

of

on world

outputs?

The

that can be put to the model. prices

to insure

of capital

full employment.

from

sector

1 at home

wages abroad

at the expense

reverse

place--labor

takes

Less formally,

at the

commodity

prices

are being

production

of xl

falls. Production

the first sector since there

are two different

producing

commodity

In more advanced from

movements, backward labor’s

Abroad,

the situation

sectors

producing

commodity

of commodity that

1 must

a) the influx

output

in the

producing

rise.

to be released

between

from

sector

11

in technology

to rise abroad

of commodity The

presumption

As the appendix

from

in the

1. The net is somewhat

if there

were no labor

by precisely

the marginal

of labor

to the advanced sectors;

flexibility

exports

from the

sector

from

shows, the relative

quantity

the

and

has -no

c) output

that

of this release

of 2-technology

causes

net

output

in the

depends compared

of

but no certainty,

asymmetry

in the

the rise in wages

what can be said about

is a presumption,

stems

overall elasticity

commodity The analysis

2. The extent

and fall at home,

l? There

technology

Labor will be released

to the extent

returns

the

of demand for labor.

169

of labor’s marginal

product

first

net world that it will to type-l

of labor released depends both upon the fraction

labor force used in sector 2, hL2, and the ratio of the elasticity the economy’s

at home.

1, as well as a sector

b) any transfer

even further

2, and on the general 11 with the rest of the economy.

output

the that

1. This follows since the real wage (reflecting

is equated

is expanded

If an increase

sector

in Ki;

the first commodity

of commodity

product)

be p;sitive.

on the size of sector

commodity

(Recall

is more complicated

of KA would,

advanced

times the increase

output

labor

will drive up At home,

capital

with its embodied producing

sector

causes

of capital

sector

marginal

advanced causes

on

factor

of x2 rises since some labor is driven

2 and from the backward

sector

net effect

With less type-l

to expand.

raise

abroad

of all capitalists.

there

of capital

and flexible

of capital.

output

by noting

product

sector

sector.

the influx

abroad

on output

simplified

constant.)

questions

2.

drtail,

sector

sector

effect

held

to the second

behavior

to all kinds

expense

and other

it can be seen that an outflow

to the advanced

of the return

loses

of these

of the

in sector 2 to

capital

in the two countries:

of the risk premium real returns output

to capital

technology

if labor

labor

movrmcnt

force

abroad.

allocations into

Thus. the

be

comparison

of

Both countries

share this technology.

differ.

wages

from country important

to country.

and.

actual

factor

But. at

the

commodity

techniques

differ

shares will generally tlemonstrutes.

in the

involves

to produce

ot

a reverse

structures

comparison

used

the appendix

2s

this

although

distributive

with

of productive of

technology

advanced

Therefore.

Much

export

did not change.

production,

the

in net world

by this further

in each country

required.

between

the inCrease

be paused

commodity-2’s

a further

would

Lcro tax) by the amount

The difference

indicates

that would

characteristics real

investors.

in the two countries

is absorbed

economies

rl (assuming

by foreign

of the first commodity

home, two

r;A exceeds

demanded

1.

because

be different

these shares art‘ an

part of the Comparison.

Although

the TT sci~eduie

in Figure 3 is drawn as of constant

commodity

prices, the above argument is that an increase in KT\ might presumably bc expected to raise world output of commodity 1 antl thus lower the price of 1. We develop

the

reverse

question:

relative

price

question

how

affect

stated of th rTA/rl.

whih,

”

But.

purposes.

in commodity

in the export

of technology.

one

can examine via trade

The only instrument

spcGl

of technology

this tax. the government

application

of

both

and

(even

relative

widens.

Indeed,

up

ir*w-‘1)

exports

the taxes

As shall be shown,

in the

.:, This IS m

is clear than an increase

as those previously on net world output

disappears

3, is the crucial

markets

actions

12

or downward.

everywhere,

gap

l’s 3. the

for the r&.

variable

linking

risk

cxports.

markets. export

to Figure

are driven

a presumption

government

By raising

abroad

in teclinolog)~

such

commodity

the equilibrium

It

commodity

the same considerations

in Figure

of technology

policy

depends.”

first sector

of an increment

by assumption

and the volume

in commodity

With reference

that the absolute

is based on exactly

commodity.

interference

of the

in the advanced

for the effect

For

once again be “it

is D presumption

first

But, we ask first the

in p 1 serves to shift TT upward

production

this presumption

below.

given increase

an increase

and r;A

to p 1). There

esogenously

an

of technology?

must

encourages

rl at home

would

the export

is whether

The answer in pl

of thi5 possibility

~onseque~~ces

Samuelson’s

(1953)

case

possibility and/or

of government

intorferencc

it proves convenient

in which

there

by which

directly to analy~c

is no interference

th? ~ ~~ovrrnmt2nt

is tile tax on y;uCng:s of foreign can restrict

reciprocity

170

KA. Should

relationship.

it do

in affect

cali

investors. SO?

See the appendix

TO the

for

details.

extent

that a restriction

abroad.

there

“terms-of-trade” prices

on capital

is a clear effect

gain

applied

raises the return

aggregate

real income

to the export

would

that a restriction

lower commodity-l’s

arguing

that such restriction

1. Does this represent Any l’s price

rise directly

to assume whereby

of this commodity.

must

First.

differences

patterns.

Secondly,

tradr

technology this

in producing discussion,

investment

and capital

in factor the

affects

abroad.

home

But,

real incomes

of trade. with an assumed

is produced,

emerges

there are several qualifications endowments

home

between

country

commodity.

may

Finally,

is itself home

such a price

invested

is the direction

However,

with

to raise commodity because

that the home country,

technology

competes

serves

the first commodity

the second

the

directly

by

price of commodity

country

price change directly

as the exporter affect

that

to the home

Of crucial importance

in the technology

be made.

this presumption

to raise the world

to technology

commodity

1 is traded.

It may seem plausible superiority

argued that there

for the first commodity

We now extend

exports

favorable

the return

more is involved--the if commodity

tend

on technology

be in part

raises

would

exports

is a

a gain or a loss to the home country?

restriction must

output.

invested This

l3 But, commodity

We have already

of technology

world

to capital at home.

of technology.

may have to adjust to clear the market.

is a presumption

for

outflows

to

being

also have

also

superior

and most importantly exported,

production.

that

countries

and

foreign

The trade pattern

could

run either way. If

the

technology

home

that commodity’s about with

country

to produce

directly,

price.

serve

the

indirectly

first

commodity

abroad,

Having ruled out export

the home

country

a tax on repatriated

would

exports

the first commodity could

earnings to

raise

from pl

taxes,

instead abroad.

as well

it has an interest which

restrict

would

bring this

technology

The presumption

by restricting

as the

in raising

world

output

exports is that this

of the

first

commodity. The better

case

commodity

the home significance important government

country of are

involving terms

a potential

conflict

of trade and a higher

importing commodity technology

will subsidize

between return

the first commodity. imports exports, these

versus the

exports

attempting

to technology

Clearly,

much depends

technology

more in order

likely

to obtain exports

exports. it

is that

to benefit

The the

by lower

has

on the less home import

prices for the first commodity.

13 The analysis of this kind of problem for capital flows not involving technology Kemp (1966) and Jones (1967) for the two-country, two-commodity Heckscher-Ohlin

171

transfers model.

is found

in

Although in

this analysis

examining

maximizes

the

the home behavior

Suppose

owners

that

income.

more

of type-l

capital

foreigners also produce commodity ogy and capital.) That is, domestic home

technology

below

owners

do so, a relative

spread the

with

multinational

would

between

an aggregate-real-income Such

rTA and

markets

conclusion:

a multinational

this

of

problem.

what might their

own

be real

discriminating

countries.

by

(After

all.

technology

of

F in Figure 3. If the) this could be

is crcat
tax

outflow

as

tax interference.

cut back on the exports

by point

f(Kl)rl

optimal

wedge

to

by more

determine

if

3

woulcl

or less than

government.

is most

commodity

of

two

could

capital

maximizing

a comparison

into

no government

level suggested

government’s restrict

together

the

Assume

of type-l

the competitive

contrasted

with

that

element

1 with their own-albeit backwards-technolpl and foreign py are the same. precisely

in the case of free trade just analyzed. Nonetheless,

is an alternative

incapable in

behavior

government

in maximizing

are

prices

the

associated

can band

they

commodity

by

there

interested

suppose

different

of “monopolistic”

taxation

typically

corporation

Furthermore.

establishing

of

real income.

perhaps

a multinational

an element

level

country’s

“monopoly” called

introduces

optimal

simple

can be ignored.

to

make

In that event,

corporation

would

if the

the model

restrict

repercussions throws

technology

on

up a strong exports

by

intent upon maximizing society’s real income. -less than would a government Indeed. a multinational could go as far as promotinp technology exports beyond the competitive

level. The rationale

the government

would

the return of-trade

abroad

to capital

consideration.

to type-l

capital

distribution

of

redistribution

already

But, such

at home.

is real national

national

with

invested

internally

of income

function

would income.

control

technology

effect

be ignored

over

the

pure

in order

position to drive up

“technology”

terms-

drives

down the rate of return -is balanced by other changes in the

(primarily However.

from a competitive exports

there--a

a restriction

This latter

income

direct

is clear. Starting

wish to restrict

a gain

by workers);

by a government it would

allocation

whose

not be ignored of its capital

such

pure

objective by a multi-

and embodied

tec1111010g):.

These

remarks

reveal

is embodied.

An export

in the home

country.

Opposed

sell off its technological be profItable

the importance

of technology

if the changes

secrets

of the assumption

involves

an export

that technology

of capital.

to this is the case of a company for a positive: price abroad.

in commodity

That would

prices could bc ignored.

171

leaving -less that could just always

When the effect trade

difference that,

(in

the

to lower

the

as a “consumer.

“I4

more

policy

heavily

technology

a) technological

used.

might

this

change

representing

actual add

“advanced”

may

commodities

by highly

if the latter

In Figure the technology

14

an

This

so that

around

being

utilized.

absolute

is

ways:

some

form

of

of techniques

not

techniques

(1969),

of the isoquant

To these by

technological

experience

concept

and Stiglitz

a region

“forgetting

the

about

and b) if “doing”

on the kinds

by Atkinson

labor-intensive

have recent

since

two

themes

doing.”

Even

disadvantage compared

in

to back-

with such techniques

and the

do not. 4, three

are drawn. l5 Consider country

have

country

in two fundamental

in labor

adopted

be

a

for the

TRANSFER

the technology;

to be focused

may

adopt

home

in production.

to export

proportions there

might

be optimal the

Its

its interest

used by economists

exports

to be “localized”

factor

a third:

would

in which

phrase

be embodied

tends

tends

countries

ward countries former

may

in order

outweighs

that the skills of and knowledge

experience

Or, to use the phrase

technological

producing

by

on the

such behavior.

in question.

of technology

knowledge

“learning,”

than

Recall

has an impetus

the multinational

AND TECHNOLOGY

to suggest

acquired

share

always

situation

is the catch

(1962)

may be required

encourages actually

SKILLS

for the discussion

migration

the

thereby.

the repercussion

never

exports

of the commodity

by doing” be

in which

is precisely

by Arrow can

important

situation

on imports

“Learning

(ignoring

terms of

an essential

and government

is revealed

the government

would

on technology

III. LABOR

basic paper

other,

of the first commodity

as a whole

depends

we

multinational

The

But,

on the one hand,

on the

of the first commodity the

on the commodity

complicated.

the first commodity,

as a “producer”

economy

more

control,

interest),

imports But,

restrictive

gets

multinational

price

of return).

of technology

analysis

national

if the nation

interest

the

between

control

rate

of restriction

is considered,

unit just

available

interest

for producing (1) and (2). Each

to a particular

and (1) to a relatively

The multinational’s

isoquants

isoquants

is actually

country--(2)

backward

“magnified,”

low-wage

the

same commodity

of these

summarizes

to an advanced country.

high-wage

Neither

as rl and r*IA rise in greater proportion

pl’ 15’llCs diagram and much of the discussion is based on Jones

173

(1976). See also Jones (1970).

isoquant

than does

Capital

L

0

Labor Figure 4. Different Fat to r Prices Lead to Different Technologies

174

dominates.

The

advanced

capital-intensive combination relative the

of learning

shapes.

country. when

high

A and

wages

developed

to

B showing

paid

But, it would

become

the

in

on improving backward

and forgetting

by not

actual

the

by the advanced

advanced

over

time.

relevant

and

Now

ahead

the advanced 4. whereas becomes

case

lag--the

country

of labor.

country

labor.

as compared with

say,

at A in Figure (2)

relevant

to it. as its real

(3) is not useful at this stage

continuously to be adopted

Each

technology

in production

to new

developing

skills

and

behind

in their

advanced

country

trained

in techniques

If the possibility to older

country’s

workers

for the relatively in (2)-type

older

home

become

more

workers

abroad.

These

17s

story

to

in the for their

the demand

it may help suppress foreign

workers

and thus are at a disadvantage

This is an ironic

useful

the h-line.

helps support

country,

in

technologies.

at A may find a ready market labor mobility

is

generation

The generation

real wages rise beyond

technologies,

workers.

country

generation

advanced

efforts.

and

add the

would prove

by a younger

generation

in the advanced

skilled

advanced by, a certain

more

development

of international

by another,

by this generation

acquired

skills of the older

being developed

the

acquired

experiencing

further

skills once the backward

in

the skills acquired

the embodied

no experience

remains,

(1). Technology

subsequently

However.

to mobile

time,

its real wages rise beyond

is more

C. Technology

countries

demand

over

At an early stage,

(3) and produces

technologies

by one country,

by, and experience

and returns

developing

country.

only when

(3). which

by point

As time progresses,

useful

less

in real wages. Suppose

level of real wages

backward

technology

technology

“vintage”

connection

in time

country.

discarded

developed

prices

technologies

by the slope of the h-line. But, by this time, the advanced

To this tale of “vintage” of

each

is at B using technology

to the backward

has developed

notion

the

factor

different

increases

country’s

country

wages have risen as shown

then

reflect

drawn,

at any point

countries. steady

of the relatively

has developed

indicated

to the backward

As

of different

has induced

technology

of two

advanced

of that

useful

country’s

and experiencing

the lower-wage

thr position country

the

capital,

is a steady

ten years

adopted

country.

a

their

is not relevant to the backward to transmit the advanced technology

profitable

one

and

explains

for the other country.

consider

accumulating there

it makes

doing

country

has had two effects--it

(or irrelevant)

relatively

country,

techniques

and if real wages rise over time. The existence

in the two countries

less

has concentrated

compared

by doing

Points

relatively

technology

country

techniques

in which

the have

compared international

labor

mobility

encourages

country’s

nationals,

advanced

country

Labor

mobility

a more

equal distribution

but enhances and

relatively

provides

better-paid

the advanced

and skills no longer

in local demand

in its own labor force.

Of

course.

a different

backward

for education

Is the to

relatively

similar

Findlay view

stages cites

related

be easiest

uniform

in economic However,

is greater

in the

(factor

preceding

an important

ingredient

tends

“localized”

to

be

forgetting

by not doing,

countries

with markedly

These

remarks a particular

concerning

the

commodities. roughly common it may

‘%is

similar than

a combination

of

strictly

the

at

article, former

can improve

gap, regardless prices)

is

of relatively of differences

between

if human

countries.

labor

skills are

and if such

of learning may not

to a comparison But, there

similarity

by

prove

progress

doing

and

relevant

for

maintain

also have

with

more

more formally

of technologies

is a broader

in technologies

would

new processes

view has also been expressed

countries

In a recent

factor prices.

proportions

that

an advanced

take the form

progress

in one country

do commodities

be expected

technical

from

In such a case, the potential

that

through

A bold hypothesis factor

we argued

commodity.

degree

The

gap. l6 This is a view which

factor

progress

apply

to produce

place.

as supporting

the origin.

endowments,

disshnilar

take

technology

in technology

in explaining

labor

OF TECHNOLOGY

prices?

of the technology

section,

to import

or between

country’s

the larger the technology

structure

labor

which later can prove

to develop

economy,

Gerschenkron

in toward

to export

to the home country

techniques

and factor

if advances

of isoquants

saving in costs

and

in the country.

country.

likely

a backward

to the extent to defend

shifts

more

of development Veblen

may

workers

IN THE EXPORT

underdeveloped

the rate at which

positively may

of technology

a relatively

(1976)

that

ISSUES

backward

country

migration

learning

to the foreign

OTHER

export

economy

training,

return

IV. CONCLUSION:

of labor

for each

workers

an opportunity

may send its younger

and on-the-job

useful if these workers

in the

and the backward

form

country

lower-paid

labor

country

and skills not found relatively

of wage incomes

the gap between

question

producing

different

that commodites

more

disparate

developed

for

technological factor

that require processe:

proportions.

for producing

by Nelson and Phelps (1966)

176

available

and deeper

in

If so,

commodities

and by Kmenta (1967).

in one

country

producing

can

other

two-way

trade

comparable

in technology

development

corporations

intensive

regions.

That

technologies

be

is,

multinationals

biased

These of the

of

but

does

commodities?

These

abroad

The choice

prices

and export

between

also upon

Tariffs

can distort

the pattern

Tariffs

can

local

also be used

market.

location

But,

of production Country

by country subsidy becoming

“For

its capital,

in principle

labor

alternatives.

to country skills,

from the

B, or it may

and technology

not only upon a comparison

(as was emphasized

of

in section

In this respect,

II)

commodity

of commodity of

foreign

factor

trade

and protect

investment

incomes

can

that

local industries. produces

significantly

for the

affect

the

for export.

B may have a limited

A and exported

could

is that the

role to play than do other forms of taxation.

to attract

taxation

might

its technology

as competing

in the host country.

have a different

from

differ

viewed

the two depends

the tax policies

(1976)

exported

skilled-labor-intensive

returns

its produce

and risks in the two countries

trade taxes (tariffs)

Magee

by the technology.

often

and export

in the

etc.) But, even if

The extra variable

the

of technology

are

locally

exporting

to the illusory

technologies and

to imitate.

to itself

the export

points

availabilities,

upon the factor mix embodied how

with

and availabilities

costs per unit of productivity

capital-intensive

are harder

that require

in less developed

the labor market,

factor

to appropriate

A may produce

instead.18

(Labor

multinational

charged

prices

why the actual

complex

techniques

to invest

factor

the

firm

depends Finally.

choose

at roughly

techniques

for such behavior

represent

expkmation

why

in abundance

frequently

wages may distort

correctly

towards

direction.

Country

Indeed,

for countries asks

given factor

SLK~I countries.

in

an interesting

export

to countries

proportions.

to production found

are

are inappropriate, labor

prices

exports

modifications,

in input

be envisaged

labor

One set of explanations

of cheap

ability

these

frequently

of unskilled

may be high; minimum provides

can easily literature

LIX

that

country.L7

factor

suitable

to

seem to pay scant attention

relatively

nature

with

close

stages of development.

The

host

be exported.

commodities

encourage

the new major

local demand

to a number an export supply

of regions.

of capital

source

for a commodity An appropriate

and technology

for this commodity,

produced production

and result exporting

in B’s

to third

a good summary of this issue, see Helleiner (1975).

18 The papers by Horst (1971 (1975).

and 1972)

focus on this issue. See also the discussion in Swedenborg

177

countries

(and

production?

perhaps

Because

firm’s

earnings.

crack

at earned

investment to

service

whose incentive

income,

local offers

limits

are

protection

countries set

Why should

than

recoup

an incentive

technology.

protected not

A).

tax agreements.

provide

foreign

where

technology

to more

International

and

commodities,

back

it could

can

markets.

And, result the

by

local

host

for countries

of

to create Tax

tax on the

countries

get first

to attract

straightforward

possibility

demand.

178

whereby unlike

to subsidize

the income

in a proliferation

the opportunity

for such behavior.

B be willing

throu&

trade

in

of production in factors

new export

arrangements

foreign trade

and

industries, provide

the

Appendix A MODEL OF TECHNOLOGY The home between

country

sectors,

is fixed,

produces

specific

x1 and ~2% using labor

capital,

Kl

K2. The

L1 and L2, mobile total

labor

of sector-2

for producil;g

commodity

1 is embodied

in its capital

is located

in the advanced

(A) sector

of its type-l

capital

so that

(KA)

Ki

plus Kl

capital,

and

as is the quantity

technology country

and

EXPORTS

force,

K2. The home country’s

e q uals a constant.

The foreign

L.

advanced

stock.

Some

of the foreign

country

allocates

part of its labor force (Li) to produce the first commodity by advanced techniques, and the remainder of its fixed labor force is employed in the backward

(B) region

to produce

to produce

commodity

Ki, K;“B, and I<;. the latter by the home country. Technology

Exports

Consider country.

returns

are constant?

Prices of type-l

share of factor

capital

i in industry

in each j, and a

and constant

labor will be attracted

to the first industry

if commodity

Let aij denote

j. Since Ll equals

(2)

GL+Kl)

=

and supplied

changes

relative

of commodity

e,

owned

or

capital,

that

If K1 rises, how much prices

(LqB),

specific

dx (f E 5;-‘> competition

denote

to scale ensure

in the quantity

the distributive

techniques,

empioys

and Ki

at Fixed Commodity

of a change

Bij denote

” A ” over a variable

1 by local

two fixed in amount

and Outputs

the effect

Letting

commodity

2, (Lz). Each of these activities

the quantity ( $)

of factor

times K1,

+ e,

179

i used per unit output

The change demand

in the labor/capital

for labor

in sector

ratio 1, yL1,

is. by the definition related

of the elasticity

to the change

of

in the real wage,

&a+:

(3)

GLlGKl)

Furthermore,

--YLl(~-~L)

the change

in the real wage is determined

by the full employment

condition:

(4)

“L2 + -K2=L. aK2

aL1 -K1 “Kl

Differentiating

(5)

yields

i@Ll-~Kl)

+ @L&)

Substitute

(3) and the comparable

at constant

commodity

(6)

Q=-

hL1

=-

x,l~,.

definition

for yL2 to obtain

the wage change

prices:

B 1,

YL

WhT? YJ_ of demand

aLlYL1

+ $27L2.

for labor, a weighted

YL IS the home economy’s aggregate average of each sector’s YLj.

180

elasticity

causes

An increase

in KT at constant

prices

a reduction

of the labor/capital

ratio

(2). prevents

Ll rising

relatively

as much

drives

up the wage.

used in each sector

as Kl.

Substitute

By (3), this and thus, by

(6) into

(3), and

then into (2), to obtain

(7)

^Ll =-

hL2YL2

k,

YL This

reveals

that

1 percent,

the

be greater greater

when

the larger

is the

the national

the

increase

capital

in labor

is sector

elasticity

supply

attracted

2 relatively

of demand

in the (always

first

as a source

for labor

sector

less than of labor

in sector

expands

by

1 percent)

2 (yL2)

(hL2)

will

and the

compared

to

average (yL).

The

output

change

in the

first

sector

is obtained

by substituting

(7)

into (1):

(8)

^xl = [OKI + (

Now suppose as capital

(9)

that the quantity

is exported

kl f

d3 Kl

The

effect

on absolute

(10)

where

output

dx 1 z=-$ A

rl

commodity

= _1 Kl

of this

of capital

to the advanced

used in the first sector

sector in the foreign

at home

falls

country.

dK;.

incremental

export

in the first sector

XLPL2

of capital

(and embodied

technology)

at home is thus

*Ll

+(YL

is the

(rental)

)“K1]’

return

to capital

price.

181

in the

first

sector,

and

pl

is the

Equation specific

(10)

capital

decomposes

employed

into two components. the output ask what more

be

the

change

real

of a change

industry

in the

on output

quantity

of

in the first industry

‘1

is the real wage, and would reflect 1’1 if the labor force in xl were fixed. To understand the second,

change

in x1 output

dLl/dKl

effect

The first of these,--,

would

labor if the labor/capital

event,

the

by the first

equal

would

wage

times

result

3s a consequence

ratio in the first sector aLl/aKI.

this

and the effect

amount

“L1

-

or 2 p1

of its employing

were unchanged. on output

In that

of x1 would

= 0 Ll/aK1.

Finally,

the

“K1

hL2YL2 () dampens this; as equation (7) reveals, this fraction shows YL the labor/capital ratio in x1 is reduced if K1 increases (as the real wage

coefficient how rises).

In the foreign producing of capital’s labor

does

of the

migrate.

product, as the

region.

of capital

of the backward

region, labor

The foreign

wage rate is bid upward;

of

and from

the adoption both

from

sector

k*L2$2.

With capital

of less labor-intensive the

backward

W*

sector

backward

technology

no effect

on

the

advanced

sector

output from

sector

2. The loss of output

is given by the real wage, 7, Pl by the advanced sector. Therefore. the transfer with

in the advanced

of the first commodity

sector

by the value

‘?A * . If no labor moves between sectors. p1 increment in Ki attracts labor from both

+ hilB~c1Bf

a migration

the x;B

raise output

But, parts

equation

(1 1)

to (6):

+yi E XrAyLA

commodity

a unit increase

1 would

marginal

backward

is analogous

where

country,

commodity

to producing of good

sector

of labor from producing

182

labor

with

requires the

first

departing

is the same as that paid

1 with advanced

1. However,

2. by analogy

techniques producing

per unit of labor

which

good

constant):

fixed in both parts

is also attracted

equation

good

technology

(2) (but

1

has to the

with

K;

But, C&2&) ( 1 1) yields

The absolute

is, by definition,

increment

of labor

*

h

“LA

is -L;

times

i5.

or

W+

-

The

total

m

increase

arriving

Therefore,

in the advanced

sector

substituting

in

from sector

2

& dK2.

in x * output 1A

in the

f;*.

output

of the

Multiply

this by the real wage,

that is due to the release

first

commodity

of labor

in the foreign

is thus

The net impact combining

(15)

times

WY ‘L

ZI* -KA

_x, to obtain the increment pi from srctor 2:

country

-yL2

on world

output

of the first commodity

is obtained

(10) and (14):

dx l+dx; dK * A

r,*A =[-__li,+,( “T

&& -).p1

CA

Y;x.

183

“iA

hL2YL2 _ (_ yL

OLl ) -1. aK1

by

The

first

term

is positive

The consequent

higher

called forth the export

the

changes

term

Since

technology

the

is the

advanced

lower

in the

and

demand

the

unchanged.

(Abroad,

as K*A expands more

the

labor

of 0 Ll/aKl

abroad

Kl

abroad

In

ratio

is

influences

of the elasticity

using advanced

of a unit of capital induce

labor/capital

from

labor ratios

attracted

of

techniques flows remain

to the A-sector

and Ll contract--but,

as more

Now.

aLl/aKl.

separate

would

1 if

the

with

technology. ratio.

two

of the labor

home--as

remain LISCS

but the labor/capital

These

of good

ratios

1 abroad

common

a transfer

sector

earlier,

by the increment

by a comparison

is elastic.

is attracted

used. And, if yL1 (or y:A)

labor/capital

is higher,

productivity at

this

If labor demand

advanced

is less than

of the

abroad.

output

caused

a comparison

sector

in (15) refer to

if labor/capital

country,

is determined

world

is what

As suggested

commodity

real wage

to the

country.

abroad

term

producing

times

yL1, with unity.

raise

in x1 output

properties

advanced

country

on net,

capital.

the

sector

bracketed

is introduced

W/PI.

the first commodity

home

which.

change sector

the

winner

for labor.

to produce the

only

is the low-wage

flows in each economy.

the home

real wage,

country,

than

conflict,

the

as does

involves

0 ;Aia;A 9 Ll/aKl

by the second

unit of capital

the advanced

countrv

in the advanced

technology.

by labor

shows

as one more

constant. same

required

induced

0 Ll/aKl

of labor

the foreign

to capital

of embodied

The adjustments output

since

r&urn

labor-intensive

per unit of techniques

are

this latter term dominates.) h Y L2 L2 -), show how, at home, -Lz) and ( The dampening fractions, ( yL yT. the labor force used in producing commodity 1 does not fall proportionately by as much industry

as does

expands.

commodity

exceeds unity. h* y*

and how.

Kl,

To the extent

2 is a relatively

large employer

2 abroad

has a relatively

structure

of the two economies

than contraction labor But. effect capital

(as & rises) the opposite of a higher and

at home than

abroad,

elastic

is absorbed

p1 technology

compared might

curve

favors a g-eater

as the second

for labor output

industry

co~11d exist

‘I with -. P

fall as the first

the sector

producing

T hL2), and sector YL2 (F YL

releases

of XT abroad relatively

at home

and might

YL3 .). the YL

>

expansion

abroad

by the x2 industry

lower

ratios

country

of labor (i.e.. ht2

demand

set of circumstances ‘TA *

labor/capital

that in the foreign

more

(as w falls).

even swamp

in ( 15). so that the export

the

of further

1

world

184

output

of the

first

commodity.

Prices, Outputs.

and Rates of Return

Suppose

both

(as well as for the rises--at

countries

second).

when

pt

sector

abroad--assuming

home,

ratio of rates of return. the If

downward-sloping TT

shifts

face

What

the

same

is the effect

in the advanced

price

for the

on outputs

sector

Exports first

commodity

of the first commodity

abroad.

and in the backward

K* remains constant? And. what is the impact on the *A rtA/rl? The answer to the latter question indicates how schedule

upward,

for Fixed Technology

TT in Figure

the

price

change

3 shifts

with

stimulates

a

an increase further

in p ,.

export

of

technology. At unchanged K 1;. a rise in pJ expands x1 output along the home transformation curve. Abroad. both the advanced and backward sectors producing

good

commodity

1 expand

2. Output

For given Kl, and rt/pJ.

These

as they

elasticities

absorb

a rise in p 1 common

rates

of return

labor

from

could be computed to both

are linked

the

sector

countries

producing 19

and compared.

raises both ryA/p 1

to the wage rate changes:

thus.

at

home:

With

unit

average

costs

being

of the factor

minimized, price

changes

the

price

change

in a competitive

must

reflect

economy.

a weighted

Rewriting

(16)

yields

(16’)

19

For

(?,-$,)=

example, in

Abroad,

?Ll. -OK1

G-i;,

the home country,

the advanced*secto:

if RLA’)‘lA exceeds 9,,,yLlB.

).

output

4.2%_2

elasticity, $1

expands relative to the backward sector

times the fraction -.

71, producing the first commodity

Relative labor intensities and elasticities of labor demand are the key

features in this comparison of technologies. For further details, see Jones (1971).

185

To solve for the change (4).

holding

provitled

in the real wag?. tliffercntiate

all andowments

constant

did

full-employm~lit

usins

the

definitions

condition for YLi ;IS

in (3):

therefore

(18)

O Ll = OKI

cyf;,,

hL?YL’ .~ TL

r),

An analogous expression shows the improvement in rlA/p 1 ahroad. shows the shift in the tlownwartl-sloping TT sc]~edu]c in Figurt’ 3:

A*;& (1’))

(>A-;,)

= [(y;l

Note

that.

advanced relative

if the

0 CA hL?YL, - (J0” KA yL

elasticity

technology

of substitution

for producing

distributive

share

capacity

of sector

2 iii cadi

20 Note that the expression

a,

Kl

betwtmi

labor

capital

in the

unity.

labor’s

advanced

sector.

If so, ;Lrise in p 1 would.

at home.

inorc thdii r]. the dampening to release

that for

aind

exceeds

foi-eign country’s

cupression

country

in (19) resembles

OLI -1

tlic first ~ommotlity

iii the low-wage

CA the comparable (-1 h ). will ccecd KA by tciidiiig to raise ‘;A re]ative]y ahroad. Of course. tecllllolog~

b

Subtracting

encouimge

;I

coefficients. labor.

c)u[put chnges

must

further export of reflecting tllr be considered

as

shown in (15). The resemblance

exact if p! is always equal to p,, and if we consider the absolute change in (he rate spread, d(r ;,\-r, ) equals the right-hand side uf equation (15). TIE rationale is Samuelson’s dq,, - dr,. Literally, dpl See Samuelson (1953) or Kuffin and Jones (1977). reciprocity relationship. For example, becomes

VA ~. “KX

at conslant

commodity

prices equals

&.;A at constanf endonments. *,T

186

Real Incomes Real

and Real Expenditures income

for

aggregate

consumption

with

amount

the

abroad,

Ki.

home

country

CD,,D2),

of home-owned

is assumed

capital

and

in real expenditures, evaluated at domestic

bundle

to depend

~lpon

and on the risk premium

The change

consumption marginal

the

bundle.

embodied

technology

dz. is defined prices

invested

as the change

(which

the

associated

reflect

in the

domestic

rates of substitution):

If K : rises, part of the increase in receipts from the new te;hnology exports is associated*with the risk pcemium which causes after-tax rIA(I-t) to exceed a true increase in home real r 1 Thus, [rlAC1-t) - rIldKA does not represent income.

(21)

Letting

dy denote

+ dD21 - [rTACI-t)

dy E [pIdDI

The development in the budget

(23)

and is only sketched

of a change

( 33). parallels

here. Let E; represent

of the first commodity

p;=(IWp,

gives

in real income, that

as revealed

found

in Jones

imports

(excess

(1967).

= P*;X] + x2 + r:AKi,

of the first commodity.

(23)

equation

real income

rI IdKL

of the sources

constraint,

$I, + D*

the change in home

Furthermore, between

net foreign

allow for a tax spread between

countries:

,

187

demand) the prices

where

7 rcprcscnts

is imported posithe

an export

instead.

tariff.

f(Ki)

constraint

for 7 would

>

exports intlicatr

of home

capital

1

good 1. If good thr cxistcnce invcstetl

of ;I d~ro3cl.

considered.

1 if Ki

> 0 and

*

f’ (KA)

>

0. Differentiating

the

budget

(22) yields

The tuo of-trade

effects.

commodity If thcrc

value

t is the tau rate on earning

With the risk premium

where

tax if the home country

4 negative

clenlents

in the first bracketed

Real income

being exported

at home

by

contrast.~,Jhe

the second country

bracketed

exports

for an!’

to cupital iiivcrtecl ahroacl.

good

cxprcssion

disappears.

I and has imposed

an

1:;. 13; exceeds p 1. Then. any incrcasc in horns csports. * per unit Cp,) than it costs to produce at h;nie (p1). Siniilnrly, :i; in tcclinology exports increase; earnings by rlAdK,,. hut reduces

export

tax so that

returns

more

an increase

home

in (25) arc the terms-

hy ;I riw in price

or hy 3 I-isc in the return

arc no tax impediments.

S~ipposc.

expression

is improved

Part of this spread represents the home production potmtial by only rldKA. risk prcniium, and sho~~ld not he counted in cly. But the tax wedge is counted. The chaructcr of the technology * the rate*of return. rlA. to the qumtity price. p , The nature of this relationship elasticity

exported

by the homr

country

links

of capital exports. Ki. and the foreign has already been described. In summ;u-q

form. it is

I88

The term the

w” is greatrr

return

6” is negative, return

than unity:

a rise in Py at constant

to Capital in the advanced as an increase

sector

in Ki

by relatively

at constant

Prices

endowments

raises

more. 21 By contrast. tnust

tirive down

the

to capital.22 Just

as p;

and K;

are the crucial

ingredients

determining

rTA. s; also

do they jointly detertzine foreign dzmand fo; the first commodity. Dl, and foreign production, xl (equal to xA plus x 1B). E(luilibrium in commodity marketscdictates given

that the change in home exports

KA. the impact

demand along

of a change

for the first commodity the

foreign

offer

the first commodity.

CLIW~,

A change

ofgoo$

in terms of trade is captured

q*.

This

pl

1 equals tlE~. For any on foreign

by the elasticity

will be negative

in technology

exports

if forrigners

As Ki

expands

represents

for the

LISC

at constant

a favorable

prices.

r;A

is driven

in real incotncs,

down.

since

they

Py. The

To foreigners, now pay less

of homc capital:

dy* = -Kidr;A

Let my denote With incomes

= - rJAG*dKi

the foreign expressed

* 111 -PI

]

change

import

serves to shift the foreign

offer curve‘ by affecting both detnand and production at constant substitution effect in demand is absent. but the incotnc effect is not. this

net excess

of net demand

*

marginal

propensity

to consume

the first commodity.

in units of good 2,

aDT ay*’

so that (27)

aD; a~*

rl*A = - p*

ml 6*

1

A

A* y* “With

22

equation (18)

An explicit

L2 as a guide, note that O* is equd to [ 1 + (-_)

form for 6* can be obtained

of (16’), assuming constant

by

prices. Thus, 6* equals

L2

o* LA

for (\w* into the foreign country’s -%A

189

%

version

:!:

The net effect of the change in KA on foreign production of the first commodity at constant terms of trade--both in the advanced sector and the backward sector--was shown by (14). It proves convenient to LISC Samuelson’s ax? shown by (14) to the cxprcssion w *: reciprocity theorem 23 to link 2 A

1* = $*

(28)

* !$

w *

A In*combining these separate ingredients whereby changes in p:; and Kl affect ET, let 1_1*denote the ratio of the value of home earn?, from capital invested abroad (i-;A K1 ) to the earnings from home exports (p 1li 1): 24

The final expression for dy is obtained by substituting (29) and (26) into the basic form (35) to display the dependence of home real incomes on * the two key vuriables; the commodity terms of trade. ~1, and the volume of technology exports, KA. This is shown in (30):2’

ay dp;

+ ;

dK;

,

A

ay where

aP;

=

L’.; [l +l_c*ti*+

(PT -PI) ~ a; 1

5

ay

-* aK

%ee

(PT-P1) Pl = [t+( y rnT + m*) 6 * - ___ ? PT pl A

W*]r*

1A

fn. 20.

24 If the home country

imports

25Tl,is can be compared

with equation

the first commodity,

/P will be negative.

(9) in Jones (1967).

190

This case is considered

below.

Policies

to MaximiLe Home Incomes A policy

country

of full optimization

remains

passive

of tax or subsidy trade

so that

on technology

optimal

first

commodity

is clear:

the home

restrict

them.

in an optimal exporter

also exports

the commoc!ity

country

in (30)

is unambiguously by an increase

to drive

~11)r;A.

levies a positive

+

tax on its capital

exports.

so as to

Er( 1 + pew*),

tax. The expression. tax level,

real income

tax),

the

tax package

which

is raised also serves

tax on capital

“7

a tax is levied.

country.

production country

that

The second

country

A contraction of x1”, thus

obtains

The first term picks LIP the favorable

rise in r;A

the foreign

w*

3

1

of the

incomes

foreign

the optimal

an export

on the

to produce

(P;-P 1)

for two reasons.

home

each of

to a great extent

is a gain. The optimal

there

m’)&* + -

home

the home

setting

technology

itself,

At a zero

counts

This is positive when

export

positive.

depends

of superior

in p”; (via imposing

On both

p1

is imposed.

on commodity

This involves

by

topt =-(-In* P;

exports

situation

If the home

directly

(31)

the foreign

involve a package

plus tax or subsidy

are determined.

and as well a positive

flows is shown

coLLntry--assLIming

in (30) equal to Lero.

The tax structure of trade.

exports

pl and Ki

the partial derivatives pattern

by the home

and levies no taxes of its own--would

evaluates in Ki forcing

would

follow

a restriction

effect

term reveals that once an export an income

foreigners

py for each unit exported,

tax

1 more highly than does

commodity (through

on

on capital

tax) would

to import when

more.

reduce

And,

the

the cost of producing

at home is p 1, which is less than p;. A con$ict any terms

appears

rise in p1 is directly of trade),

although

trade move in opposite

/1*=

if the home unfavorable

imports

the first commodity:

a worsening

it serves to raise r1A. Commodity

directions.

- E*+r* K* 2 1A A

country (it m:ans

The size of p* becomes

of the commodity and capital

crucial:

terms of

If capital

flows ilre relatively

(1 + p”o*)

positive.

commodity

1. and

The thns

p * is small in absolute

Lmimportant, home

;oLmtry

reduce

pl.

should

Such

levy

il tariff

;L tariff

policy

value, leaving on imports

lcads

of

to arnbigLLo:s

results for the tgx on foreign earnings. On the one hand. a restriction of KA serves to raise rlA. which benefits home residents. On the other hand, such ;I restriction would serve to lower foreign production and foreign exports of the first commodity, at home

(pl).

be negative.

costs effect

If Ki

of a tariff optimal

which

If this latter

SLICII a

if capital

(l+,~*o*).

case.

commodity Ootimal

;i subsidy

(31 1 clearly

Technoloev

thun

it is worth

t in (3 I) coLLld

In

110

commodity

on imports

indicates

Restriction

the home

dominate

case,

trade

of commodity

a positive

income

of coLLrse. does

tax

in the sense

1 is suggested. to restrain

Lt pay to subsidize

the both

exports. in LLFree Trade World

country

cannot

impose

restrictions

on commodity

on capita1 and that p 1 always equals p;. Then, any restriction exports serves to disturb commodity markets. The impact on real

trade so technology

at home

LlY do*

is shown

=g

A

-

1

dP1 +g d K” A

aK* A

.

1A

new ingredient

If markets

of an increase

A

1

-ay = (t+6 *)r* The crucial

by:

= E* (l+p*w”)

aq

prices.

exports

trade and technology

Suppose

where

ip;) optimal

is smull, 16*1 tends also to be small. lending ;I presumption of good 1 and a sLLbsidy on techno1ogY exports as an

OLltflow of technology.

(32)

abroad

important.

package.

of a negative

income

is Moe

on imports

Alternatively. In

less to obtain

arg stable.

is the effect

of technology

;1s we suppose,

in KA on excess

world

it is sufficient

demand

192

exports

on commodity

to exarninc

for commodity

the impact

1 at initial prices.

Equation and (27) shows when

(15) displays

the effect

how foreign

demand

an increase

remaining

in Ki

element

expenditures

drives

LIP

of technology for good

foreign

real incomes

aDl is 7. This term equals dK* A

on the two commodities

shows that if py is held constant,

exports

on world outputs,

1 rises at constant

terms of trade

by reducing

r;A.

The

z denotes

real

az

aDl aZ

-,

aK* A

aDl r

at home.

where

In 1 is pl

Equation

(25)

and if there is free trade,

dy = K*dr* +r * tdK* A 1A IA A

= rFA(t+G*)dK;

But,

the existence

in type- 1 capital

of a risk premium

aZ (33)

= CryA&* +

aK*

on the export

implies that dz exceeds

of technology

this; recalling

equation

embodied

(2 1):

(rrA-rl)l.

A

The

first

abroad amount. must wedge

term

because

shows r;A

that

But, the second

rise if Ki

expands

or a risk premium.

at home (although The

increase

just

is lowered,

as an increase it decreases

term indicates and r:A

real income in excess

increases

that the aggregate

exceeds

This entire

in Ki

real spending rl, whether

discrepancy

world

of commodity

193

by the same

value of world output

the excess is due to a tax

because

in (34) by adding these various ingredients:

real spending

serves to augment

only improves supply

at home

spending

of the tax wedge). 1 is then

obtained

ieq~,+x;-D~-D;) (341

The

r;*cs * 1112 + - (r* -r ) = (m*-m ) 1 1 1A 1 Pl ?

aK* A

first

transfer

expression effect

foreign

on the

rate of return.

of the output the export increase

effect

The third expression

of technology terms

side can be of either

in real incomes

of the labor

of technology.

at initial

right-hand

of a change

brought is familiar

flows

of trade

creating

resides

It is the in the

as wages cliangc

with

sign. The basic bias toward

an excess supply

in the

sign.

by a change

from the carlicr discussion

in each country

It can also have either exports

about

second

term.

an

of the first commodit) World

spending

on all

reallocations,

(r;A-rl) * ~ when KA rises by one unit. Ignoring the labor PI this represents an increase in world output of the first commodity.

And,

the transfer

commodities

rises by

ignoring

spending

of commodity

Although stable market,

t

an increase

E” - +

opt

first

flows--a trade.

term

The

additional in p1 that the raises

hoTe rlA.

exports

indicates

second argument such

for

restriction

country’s

to raise pl

in a

tax can be written

as:

A the

basic

presumption

the return

depends restricting

previously,

for

on foreign

a positive capital

on tht: trade

pattern.

technology

exports

is assumed

commodity

As indicated

serve

dP &*

(l+/J*w*)

improves term

may

excess

PI is lowered.

that the optimal

1A

tax directly

1). augments

z(r;A-r PI

The remainder,

in technology

(32) suggests

= -6*

of this, m 1, goes into increased

1.

we now assume that instead

Equation

The

only a fraction

on the first commodity.

world supply

(35)

effect.

terms

to bring of trade.

appropriate

194

about. which

tax on capital

at cgnstant If El > follows

terms of

0, then from

This directly

an

the rise improves

as well independently

tax policy

is moderated

if the

home

country

minor,

imports

the country

a market-induced

Private Control

below there

for the entire

the

levels

We assume

markets:

that,

it cannot

when

the objective

only

their

exports

Nonetheless.

although over

discriminate

exports

between

of technology

real income.

private

the monopoly

capital

is to maximize

with an alternative

the export

own

of KA so that ‘;A exceeds

monopoly

rl by more takes directly

on world home

Suppose

into account

prices

and

control

than the tax of the

foreign

first

commodity

pl and p”; must be the same.

Kt Kl Let (Dl .D, ) represent capital

provoking

But, if technology

at home can restrict

tax o; tariff.

of its control

commodity,

are relatively

thereby

can be compared

to maximize

is no government

impact

of trade.

tax policy community

of type- 1 capital

may result in a restriction premium.

exports

of technology,

Exports

for optimal

competitive

If capital

its export

in its terms

over Technology

owners

commodity.

tax proves optimal.

results

the real income in which

first

subsidize

improvement

loom large, a positive

These

the

might

in the home

(36)

POD:’

Total

capital

completely

country.

Kl

=rK

+ D7

1

the consumption The budget

1

bundle

constraint

for owners

for this group

of type-l is given by:

+ r* K* 1A A

K 1 + K;, is assumed given and fully utilized.26 This group the risk element in its export of capital, so that it is necessary

stock, bears

Kl to distinguish

between

the

in (37), and in its real income,

1

Kl (37)

dz

(38)

dy

26We ignore “immiserizing

-pldD;

Kl

-dz

Kl

the possibility growth” case.

change dy

Kl

in its real expenditures,

shown

by dz

, shown by (38):

K1 + dD2

- [f(Ki)-1lrldKi

that it might

pay the private

195

monopoly

to let some capital

stand idle--the

Differentiating

Kl (39)

dY

the budget

Kl =-D1

The dependence

dpl

+[r* 1A

constraint,

(36).

-f(K~)rl]dK~

of rTA on the terms

and solving

for dy

Kl

yields

+ K dr f K*dr” 1 1 A IA

of trade

and capital

flow was shown

by

(26); by analogy,

(40)

/;I = w”p, + Sk,

Substituting

(41)

dy

into (39) yields

Kl

dK* A

av

L=

where

ayKldP1 -

= ap

Kl

_D

dK” A

1

Kl 1

apl

p1

ay

optimal

policy

otherwise income

this

l’ 1

+ [rTA-f(Ki)rll

expression

for a government

competitive as its objective

international

allocation

rTAKi

‘1Kl +-~+-----_w*

Kl = [6*rTA-6rl] aK* A

It is by comparing

avKl

+ I aK* A

world

with

which and

function of type-l

(32)

that

it is possible

can levy a tax on capital

which with

takes

that

capital

196

entire

for a group

concerned

real income.

the

with

to contrast exports

in an

community’s

real

control

with maximizing

over the its private

First. that

in (33) with aK* in (4 1). This is the comparison aK* A A if the repercussions on the commodity terms of trade are

is relevant

ignored.

ayKI

ay

compare

z equals Lcro when aK * A

topt = -s*.

(41)

a\, Kl L aK* A abroad

whcrcas carned

is zero when the rate spread between that

would

be required

[r;A-f(K* )rl 1 r* A

(43)

that

zss

private

than

monopoly

is optimal

over the export policy

is

of technology

since the rate spread

of trade are ignored,

attention

is paid to the resultant

(43).

This

(labor

restricts

fall in r1 would

income)27

considered

that

terms

policy

with

Indeed.

of technology

is

in (43)

commodity.

effects

of type-2

capital

by the 6 term in incomes

real income.

If these owners interests

at home

But, it is an effect

control

the capital

flow,

exercises

may even encourage

the export

levels.

are also involved

As (35) showed,

Of course, owners

private

NO

in other

larger than in the cast in which government

as (43) shows,

in technology

are improved

to raise r;A.

captured

by increases

in aggregate

of capital.

over competitive

Indirect increase

in order

fall in r1 at home

no change

by the owners

home incomes

exports

kChnObgy

be matched

will be unambiguously

control.

27

f(Ki)rl,

than in (42). If the commodity

an

control

government

by a tax

Ki

market,

IA

opt

less restrictive

in a competitive

‘1

IA

‘This reveals

r;A and the rate on capital

exports

in this comparison. will

if the home

at home

would

drive

down

country

have decreased

197

We assume now that the

price

is a net exporter

incomes.

of

the

first

of the first

commodity.

the

Any tl’*’

inducetl direct

1’1.

If.

(so

the

1 helps not effect

home

jj.~*l is small).

the export

the

suggested

through

whose

track

leverage

clepentls

to the

extent

by a restriction dire*ct

is

the

upon

by uf

that

it gains

exports.

coniinodity. conipared

technology

an incaitive

has

of

first

of I-paw*)

with

on

cffcct.

but through

the level the

the valiic

compared

whole

C-6*)

rise in rlA.

given

importer

is important 3s a

served by

;I further

is ;I net

community

technology

of

only

effect

If coniniotlity

are best

that

country

of this indirect

unity.

interests

surpassing

terms-of-tratk

instead.

that

overall

,;en

rise in p

the direction with

nation’s

exports

technology

exports

tu encourage

from 3 lowering

of import

price. a private

By contrast. finds

itself

follows

since

value

the

in this

and

Whereas

of capital

made better tax rate

w_*

Thr each

;I

off by

and

that

would

the spread

only of owners

of type-l

-L._

this

derivation,

note

that

CJ can

be found

positive.

constraint.

indirect

This (36).

never exceeds

of the first commodity,

this commodity

c;m never bc

effects

can be combined

to

by a national-welfare

compare

maximizing

ryA and f(Ki)r,.

which

capital.

(35) with (41 )18 yields

- ET

never

in its price.

Comparing

hLlYL1 -( -----)o

5 Dl

‘IK1 + -

w

equals

p1 for

By the budget

in producing

?L

In

always

for the first commodity

may be a net importer

K2+L)

28

in technology

(41 ) is

in

ak?l unity.

de~nmtl

be imposed

between

trude

av Kl

term

specifically

reduction

controlling

exc~d

own

the nation

used

Both direct with

position.

of the monopoly’s

its income. owners

2

monopoly

in fn. 21.

198

would

Ll’l’

(DID:‘).

maximize

(b] dK” A

the optimal government real income

’

x1 +oK,Wx,. Anexplicit

form

(Kq+L) D1 -

where

the term

m

the consumption

is positive more result

restrictive market

of the owners

of type-l

country

consumption

capital.

of good 1

‘1

The fact that ( - 7

6) IA will bc

that an optimizing government dp] restrictive than a private monopoly. With dK* assumed negative. A is enhanced if home production is sufficiently large. Otherwise,

monopoly’s

supports

refers to total home

concern than

the earlier contention

to keep

p1

the government.

price p1 to the export

from

falling

may

Much

would

depend

of technology.

199

encourage upon

this the

it to be more the sensitivity

of

Arrow.

K.J. (1962).

of Economic Atkinson,

A.B..

Change.” Caves.

and

R.E. (1971),

Columbia

University.

(I 975).

by Doing,”

Review

New

View

of Technological

Thr

Industrial

Economics

of

38: l-17.

A

Direct Forci:n

Simple

I)ynamic

Invcstmrnt and the

Model.”

unpublished.

Mimeographed. H. ( 1959). “I:actor

R.. and Grubcrt,

G.K.

“A

Corporations:

Backwardness.

Technology:

and the Terms of Trade.”

Devrloped

of Lcarnin:

79: 573-78.

I-tconomica.

“Rclativc

of

Helleincr.

(1969).

“International

Transfer

Findlay,

J.1:.

Journal.

Investment.”

R. (1976).

Implication

39: 155-73.

Stiglitl.

Economic

Foreign Findlay.

“The Economic

Stud&.

Oxford

“The

Countries’

Role

Trade

Intensities,

I:conomic

of Multinational in

Technological

I’apcrs.

Corporations

Technology,”

Progress,

1 I: 1 1 l-22. in the Less

World

Development.

Firm:

Optimal

3:

161-89. Horst,

T. (197 1 ). “The under

Different

Theory

Tariff

of the Multinational

and Tax Rates,”

Journal

of Political

Behavior

Economy.

79:

1059-71. (1972).

“The Industrial

ary Sales to the Canadian Johnson,

Jones.

Harry

G. (1968).

in International

Homcwood.

111.: Irwin.

R.W. (1967).

Market.”

“Economic

in Readings

and Trade.”

“lntcrnational

Quarterly

Composition

Journal

American

of U.S. Exports Economic

Development

Economics.

Capital

Review. 62: 37-45.

and International

Trade.”

eds. R.E. Caves and H.G. Johnson,

Movements

of Economics,

200

and Subsidi-

and the Theory

8 I : l-38.

of Tariffs

Jones,

R.W. (1970).

“The

Role of Technology

Trade. ” in The Technology

Factor

in the Theory

in International

of International

Trade, ed. J.M. Vernon.

New York: NBER. (1971). in

Trade.

R.W.

“A Three

Balance

Jones,

R.A.

Factor

Mundell.

Allocation

Symposium

on

Stockholm,

June

Model

Trade.

Growth.

eds.

and J. Vanek,

Amsterdan:

on Technology,

Technical

of Economic

the

in Theory,

and

Payments,

“Comments

(1976). International

Kemp,

of

Activity.”

International

of

Bhagwati.

North-Holland. Progress

Paper

Allocation

and History.” J.N.

and the

read at the Nobel

Economic

Activity,

1976. Mimeographed. “The

M.C. (1966).

Nro-Heckscher-Ohlin

Gain from

International

Approach,”

American

Trade

and Investment:

Economic

Review.

A 56:

788-809. Kmenta,

of Technology

A. Woroniak, Magee,

“F’.conomic

J. (1967).

Transfer

S.

Theory to

(1976),

“Information Theory

the Proceedings

and

R.R..

of a Conference

and Phelps. and

the

of Direct

eds.

in The ~ and

D. Spencer

An

forthcoming Economic

in

Order.

Mass.: M.I.T. Press.

“Investment

Growth.”

Corporation:

Investment,”

Cambridge,

E.S. (1966).

Economic

Multinational

Foreign

on the New International

May 17-20. 1976. ed. J. Bhagwati.

Diffusion.

of Technology,”

Countries,

New York: Praeger.

Appropriability

Nelson,

and Transfer

Developing

in Humans,

American

Technological

Economic

Review,

56:

69-75. Ruffin,

R.. and

Jones.

classical Ambiguity,” Samuelson,

P.A. ( 1953).

Review of Economic

R.W. (1977), Journal “Prices Studies.

“Protection

of Economic of Factors 2 1: l-20.

201

and Real Wages:

Theory.

The Neo-

forthcoming.

and Goods in General

l’quilibrium,”

202