In reality markets within which International Technology Transfer (ITT)
takes place are subject to various market failures. First, there is asymmetric
information. Since technology suppliers cannot fully reveal their knowledge
without undermining the profitable basis of their trade, buyers cannot fully
determine the value of the technology before buying it. Second, legally
enforced intellectual property rights tends to give owners of new technologies
substantial market power which can be used to exploit buyers to boost their
own profits. Third, there are likely to be externalities in the process of learning.
The adoption and mastery of new technology by one firm may act as a signal
to other firms who then adopt the same technology. These wider social benefits
of the initial learning to other firms will not be accounted for by the pioneer
firm. Firms may even choose not to engage in learning that can easily be repli-
cated, given this will make the subsequent market more competitive and less
profitable. Fourth, contrary to the simple models, many technologies are tacit,
meaning that firms have more knowledge about their own technology and may
know little about alternative technologies even within their own industry, and
a period of learning is necessary to master any new technology.
Different technology structures have different implications for growth.
Demand for high-technology products tends to rise rapidly in world markets
(known as a more income-elastic demand), which offers more potential for
ra pid export growth (see Chapter 8). High-technology products also offer
greater potential for spillover effects in terms of creating new skills and learn-
ing. Simple technologies are also vulnerable to being replaced by new tech-
nologies and the entry of lower-wage competitors to the market. As noted
earlier, although technological change can be complementary it can also be
destructive and render earlier technologies obsolete.
There is strong empirical evidence in support of these arguments. Between
1985 and 1998 world exports of primary products grew by 3.4 per cent per
annum, low-technology manufactured exports by 9.7 per cent and high-
technology manufactures by 13.1 per cent (Lall, 2000:344). These differential
growth rates resulted in significant changes in the structure of world trade. The
share of resource-based exports fell from 23.7 per cent of world exports in
1985 to 17.3 per cent in 1998; low-technology and medium-technology
exports remained stable (18.6 per cent and18.8 per cent and 40.9 per cent and
38.9 per cent respectively); and high-technology exports increased (from 16.8
per cent to 25.1 per cent) (Lall 2000:351).
Given these market failures there may be a valid case for government inter-
vention to promote ‘infant industries’. Industries or firms that have the poten-
tial to be competitive (the infant can grow up) need nurturing through the
process of learning. This nurturing is known as ‘industrial policy’. In relatively
simple labour-intensive activities based on standardized and easily available
technology (such as garment assembly) the wage-cost advantage of develop-
ing countries may offset the learning costs completely,making nurturing
unnecessary. In more technologically complex activities with greater demands
on skills and linkages with other sectors, the learning process may be long and
104 Sources of Growth in the Modern World Economy since 1950