International licensing and quality-enhancing technology spillover in a product cycle model

Abstract

This paper examines the effects of an international quality-enhancing technology spillover on the international industry distribution and innovation in a dynamic North-South model. When a Southern firm receives a technology transfer from the North through international licensing, the technology spills over to other Southern firms by enhancing the quality of their products. We find that a stronger spillover effect depresses both Northern innovative R&D and Southern adaptive R&D, and thus is welfare-impairing both for the advanced country and recipient country. The results cast doubt on the common view that regards the technology spillover as a positive externality.