TECHNOLOGY TRANSFER TO DEVELOPING COUNTRIES: A QUANTITATIVE APPROACH A THESIS SUBMITTED TO THE UNIVERSITY OF SALFORD IN FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF DOCTOR OF PHILOSOPHY--.! --,:, --,-,::,, BY HAMID JAFARIEH TECHNOLOGY, INFORMATION, MANAGEMENT AND ECONOMICS (T. I. M. E.) RESEARCH INSTITUTE JULY 2001 DEDICATED TO MY DEAR WIFE, SHAHLA MY DEAR DAUGHTER, SHAHRZAD TABLE OF CONTENTS DEDICATION TABLE OF CONTENTS LIST OF FIGURESAND TABLES xii APPENDIX A: LIST OF FIGURES AND TABLES xii APPENDIX B: LIST OF FIGURES AND TABLES xiii APPENDIX C: CLUSTER ANALYSIS AND T-TEST xiv ACKNOWLEDGEMENTS xv ABSTRACT xvi LIST OF ABBREVIATIONS xviii CHAPTER 1: INTRODUCTION I 1.1 INTRODUCTION 1 1.2 GENERAL BACKGROUND TO THE STUDY OF TECHNOLOGICAL TRANSFER 3 1.3 THE OBJECTIVESOF THE RESEARCH 4 1.4 LIMITATIONS OF THE PRESENTANALYSIS 6 1.5 THE STRUCTUREOF THE THESIS 8 1.6 REFERENCES 10 CHAPTER 2: CONCEPTUAL ISSUES OF TECHNOLOGY, TECHNOLOGY TRANSFER, GROWTH AND DEVELOPMENT 2.1 DEFINITIONS OF TECHNOLOGY 2.2 DEFINITIONS OF TECHNOLOGY TRANSFER 13 2.3 TECHNOLOGY CLASSIFICATIONS AND COMPONENTS 15 2.4 TECHNOLOGY TRANSFER CLASSIFICATIONS 17 2.5 CHANNELS AND MECHANISMS OF TECHNOLOGY TRANSFER 18 2.5.1 FOREIGN DIRECT INVESTMENT 23 iii 2.5.2 JOINT VENTURES - 27 2.5.3 LICENSING AGREEMENTS 28 2.5.4 PATENTS AND PATENTS AGREEMENTS 30 2.5.5 KNOW-HOW AND THE KNOW-HOW AGREEMENT 31 2.5.6 TRADEMARK AND TRADEMARK AGREEMENT 31 2.5.7 TECHNICAL ASSISTANCE CONTRACTS 32 2.5.8 TURNKEY CONTRACT 32 2.5.9 MANAGEMENT CONTRACTS 33 2.5.10 INTERNATIONAL SUBCONTRACTING 33 2.5.11 THE FRANCHISING AGREEMENT 34 2.5.12 THE IMPORTS OF CAPITAL GOODSAND MACHINERY 34 2.6 ANALYSIS OF THE CHANNELS 35 2.7 GROWTH AND TECHNOLOGY TRANSFER 36 2.7.1 CAPITAL ACCUMULATION 36 2.7.2 POPULATION AND LABOUR FORCEGROWTH 37 2.7.3 TECHNOLOGICAL PROGRESS 37 2.8 THE PRODUCTION FUNCTION 38 2.8.1 THE COBB-DOUGLAS PRODUCTIONFUNCTION 40 2.9 GROWTH PERFORMANCES 41 2.10 DEVELOPMENT AND TECHNOLOGY TRANSFER 45 2.11 INDUSTRIALISATION 47 2.12 SUMMARY AND CONCLUSIONS 48 2.13 REFERENCES 50 iv CHAPTER 3: MULTINATIONAL CORPORATIONS AND 60 INTERNATIONAL TECHNOLOGY TRANSFER 3.1 INTRODUCTION 60 3.2 MULTINATIONAL CORPORATIONS:HISTORICAL PERSPECTIVE 61 3.3 MULTINATIONAL CORPORATIONSAND LESS DEVELOPED COUNTRIES 63 3.4 PRIVATE FOREIGN DIRECT INVESTMENT AND THE MULTINATIONAL 64 CORPORATIONS 3.5 MULTINATIONAL CORPORATIONSAND ECONOMIC DEVELOPMENT 67 3.6 WHY DO MULTINATIONAL CORPORATIONSTRANSFER TECHNOLOGY TO LESS 69 DEVELOPED COUNTRIES? 3.7 ADVANTAGES ENJOYED BY THE MULTINATIONAL CORPORATIONS 69 3.8 COSTSAND BENEFITS TO THE LESS DEVELOPED COUNTRIES 71 3.9 EFFECTSAND PROBLEMS OF MULTINATIONAL CORPORATIONS' OPERATIONS 72 IN LESS DEVELOPED COUNTRIES 3.9.1 TECHNOLOGICAL EFFECTS 73 3.9.2 RESTRICTIONSASSOCIATED WITH TRANSFER 75 3.9.3 EFFECTSON LOCAL RESEARCHAND DEVELOPMENT 75 3.9.4 EFFECTSOF TRADE FROM LESS DEVELOPED COUNTRIES 76 3.9.5 FINANCIAL PARTICIPATION IN THE LOCAL FIRM 77 3.9.6 WELFARE IMPACT FOR LESS DEVELOPED COUNTRIES 77 3.9.7 OTHER IMPACTS 78 3.10 FACTORS AFFECTING THE SUCCESSORFAILURE OF TECHNOLOGY TRANSFER 78 3.10.1 PUBLICPOLICIES 79 3.10.2 EFFECTIVE MANAGEMENT 80 3.10.3 EDUCATION AND TRAINING 81 3.10.4 RESEARCHAND DEVELOPMENT (R & D) 81 V 3.10.5 MARKET SIZE 82 3.10.6 THE ABSORPTIVE CAPACITY OF A RECIPIENT 82 3.10.7 GOVERNMENT REGULATIONS AND POLICIES 83 3.10.8 SOCIAL AND CULTURAL VALUES 84 3.10.9 THE WILLINGNESS OF TRANSFERORAND TRANSFEREE 85 3.10.10 EXPORT PROMOTION POLICIES 86 3.10.11 HUMAN RESOURCEDEVELOPMENT POLICIES 87 3.10.12 RESOURCEAVAILABILITY 88 3.10.13 QUALITY OF LIFE 89 3.11 SUMMARY AND CONCLUSIONS 90 3.12 REFERENCES 92 CHAPTER 4: IDENTIFICATION OF A METRIC FOR INTEGRATION OF 99 TECHNOLOGY TRANSFER 4.1 INTRODUCTION 99 4.2 DEFINITION OF GROSSINDUSTRIAL PRODUCT(GIP) 100 4.3 IDENTIFICATION OF A METRIC FOR TECHNOLOGY TRANSFER 101 4.4 DATA COLLECTION AND CALCULATION OF GROWTH IN GROSSINDUSTRIAL 104 PRODUCT 4.5 DATA ON IMPORTED TECHNOLOGY 105 4.6 CALCULATIONS OF IMPORTED TECHNOLOGY AS PERCENTAGEOF GROSS 106 INDUSTRIAL PRODUCT 4.7 RELATIONSHIP BETWEEN GROSSINDUSTRIAL PRODUCT AND IMPORTED 107 TECHNOLOGY AS A PERCENTAGEOF GROSSINDUSTRIAL PRODUCT 4.8 SELECTION OF INDICATORS 108 4.9 ANALYSIS OF ECONOMIC AND SOCIAL INDICATORS 109 vi 4.10 THE SELECTION OF EXPLANATORY VARIABLES III 4.11 CLASSIFICATION OF THE INDICATORS INCLUDED IN THE MODEL 112 4.11.1 ECONOMIC INDICATORS 112 4.11.2 SOCIAL INDICATORS 114 4.12 COUNTRIESNOT INCLUDED IN THE ANALYSIS 116 4.13 COUNTRIES INCLUDED IN THE ANALYSIS 118 4.14 METHODOLOGY/SOME DEFINITIONS 119 4.15 FORMULATION OF THE MODEL 119 4.16 OBJECTIVESOF THE MODEL 120 4.17 SUMMARY AND CONCLUSIONS 121 4.18 REFERENCES 122 CHAPTER 5: A STRUCTURED APPROACH TO MULTIVARTATE 126 MODEL-BUILDING 5.1 INTRODUCTION 126 5.2 MODEL-BUILDING STAGE 1: DEFINE THE RESEARCHPROBLEM, OBJECTIVES 127 AND MULTIVARIATE, TECHNIQUE TO BE USED 5.2.1 MODEL-BUILDING STAGE 2: DEVELOP THE ANALYSIS PLAN 127 5.2.2 MODEL-BUILDING STAGE 3: EVALUATE THE ASSUMPTIONS UNDERLYING 128 THE MULTIVARIATE TECHNIQUE 5.2.3 MODEL-BUILDING STAGE 4: ESTIMATE THE MULTIVARIATE MODEL 128 AND ASSESSOVERALL MODEL FIT 5.2.4 MODEL-BUILDING STAGE 5: INTERPRETTHE VARIATE (S) 128 5.2.5 MODEL-BUILDING STAGE 6: VALIDATE THE MULTIVARIATE MODEL 129 5.3 FACTORANALYSIS 129 5.4 FACTOR ANALYSIS DECISION PROCESS 130 5.4.1 MODEL-BUILDING STAGE 1: OBJECTIVESOF FACTOR ANALYSIS 130 vii 5.4.1.1 IDENTIFYING STRUCTURETHROUGH DATA SUMMARISATION 130 5.4.1.2 DATA REDUCTION 131 5.4.1.3 VARIABLE SELECTION 131 5.4.2 MODEL-BUILDING STAGE 2: DESIGNING A FACTOR ANALYSIS 131 5.4.2.1 CORRELATIONSAMONG VARIABLES OR RESPONDENTS 132 5.4.2.2 VARIABLE SELECTION AND MEASUREMENT ISSUES 132 5.4.2.3 SAMPLE SIZE 132 5.4.3 MODEL-BUILDING STAGE 3: ASSUMPTIONSIN FACTOR ANALYSIS 133 5.4.4 MODEL-BUILDING STAGE 4: DERIVING FACTORSAND ASSESSING 133 OVERALL FIT 5.4.4.1 COMMON FACTOR ANALYSIS VERSUS COMPONENT ANALYSIS 134 5.4.4.2 CRITERIA FOR THE NUMBER OF FACTORSTO EXTRACT 134 5.4.4.2.1 LATENT ROOT (EIGENVALUE) CRITERION 135 5.4.4.2.2 PERCENTAGEOF VARIANCE CRITERION 135 5.4.4.2.3 SCREETEST CRITERION 135 5.4.4.2.4 HETEROGENEITY OF THE RESPONDENTS 136 5.4.5 MODEL-BUILDING STAGE 5: INTERPRETINGTHE FACTOR 136 5.4.5.1 ROTATION OF FACTORS 137 5.4.5.1.1 ORTHOGONAL ROTATION METHODS 137 5.4.5.1.2 VARIMAX METHOD 138 5.4.5.2 CRITERIA FOR THE SIGNIFICANCE OF FACTOR LOADINGS 138 5.4.5.2.1ENSURING PRACTICAL SIGNIFICANCE 138 5.4.5.2.2 ASSESSINGSTATISTICAL SIGNIFICANCE 139 5.4.5.2.3 ADJUSTMENTS BASED ON THE NUMBER OF VARIABLES 139 5.4.5.3 INTERPRETING A FACTOR MATRIX 139 5.4.5.3.1 EXAMINE THE FACTOR MATRIX OF LOADINGS 139 5.4.5.3.2 IDENTIFY THE HIGHEST LOADING FOR EACH VARIABLE 140 viii 5.4.5.3.3 ASSESSCOMMUNALITIES OF THE VARIABLES 140 5.4.6 MODEL-BUILDING STAGE 6: VALIDATION OF FACTOR ANALYSIS 141 5.5 MULTIPLE REGRESSIONANALYSIS 141 5.6 MULTIPLE REGRESSIONMODEL AND MULTIPLE REGRESSIONEQUATION 142 5.7 INTERPRETINGTHE REGRESSIONCOEFFICIENTS 143 5.8 THE LEAST SQUARESMETHOD 144 5.9 THE MULTIPLE COEFFICIENTOF DETERMINATION AND ADJUSTED MULTIPLE 144 COEFFICIENT OF DETERMINATION 5.10 A DECISION PROCESSFOR MULTIPLE REGRESSIONANALYSIS MODEL-BUILDING 145 5.10.1 MODEL-BUILDING STAGE 1: OBJECTIVESOF MULTIPLE REGRESSION 145 5.10.1.1 RESEARCHPROBLEMS APPROPRIATE FOR MULTIPLE REGRESSION 146 5.10.1.2 SPECIFYINGA STATISTICAL RELATIONSHIP 147 5.10.1.3 SELECTION OF DEPENDENTAND EXPLANATORY VARIABLES 147 5.10.2 MODEL-BUILDING STAGE 2: RESEARCHDESIGN OF A MULTIPLE 148 REGRESSIONANALYSIS 5.10.2.1 SAMPLE SIZE 148 5.10.2.2 DUMMY VARIABLES 149 5.10.3 MODEL-BUILDING STAGE 3: ASSUMPTIONSIN MULTIPLE REGRESSION 150 ANALYSIS 5.10.3.1 ASSESSINGINDIVIDUAL (DEPENDENTAND EXPLANATORY) 150 VARIABLES VERSUSTHE VARIATE 5.10.3.2LINEARITY OF THE PHENOMENON 152 5.10.3.3 CONSTANT VARIANCE OF THE ERRORTERM 152 5.10.3.4 INDEPENDENCEOF THE ERROR TERM 153 5.10.3.5NORMALITY OF THE ERRORTERM DISTRIBUTION 153 5.10.4 MODEL-BUILDING STAGE 4: ESTIMATING THE REGRESSIONMODEL AND 154 ASSESSINGOVERALL MODEL FIT ix 5.10.4.1 GENERAL APPROACHESTO VARIABLE SELECTION 154 5.10.4.1.1 CONFIRMATORY SPECIFICATION 155 5.10.4.1.2 SEQENTIAL SEARCH METHODS 155 5.10.4.1.3 STEPWISEESTIMATION 155 5.10.4.1.4 COMBINATORIAL APPROACH 158 5.10.4.1.5 BEST-SUBSETSREGRESSION 159 5.10.4.2 TESTING THE REGRESSIONVARIATE FOR MEETING THE 160 REGRESSIONASSUMPTIONS 5.10.4.3 EXAMINING THE STATISTICAL SIGNIFICANCE OF THE MODEL 161 5.10.4.3.1 SIGNIFICANCE OF THE OVERALL MODEL: THE 161 COEFFICIENT OF DETERMINATION 5.10.4.3.2 F TEST 161 5.10.4.4 IDENTIFYING INFLUENTIAL OBSERVATIONS 162 5.10.5 MODEL-BUILDING STAGE 5: INTERPRETING THE REGRESSIONVARIATE 163 5.10.5.1 USING THE REGRESSIONCOEFFICIENTS 163 5.10.5.2 ASSESSINGMULTICOLLINEARITY 163 5.10.5.2.1 THE EFFECTSOF MULTICOLLINEARITY 164 5.10.5.2.2 IDENTIFYING MULTICOLLINEARITY 165 5.10.5.2.3 REMEDIES FOR MULTICOLLINEARITY 165 5.10.6 MODEL-BUILDING STAGE 6: VALIDATION OF THE RESULTS 165 5.10.6.1 ADDITIONAL OR SPLIT SAMPLES 166 5.10.6.2COMPARING REGRESSION MODELS 166 5.10.6.3 PREDICTING WITH THE MODEL 166 5.11 SUMMARY AND CONCLUSIONS 167 5.12 REFERENCES 169 x CHAPTER 6: RESULTS ANALYSIS AND THEORETICAL INTERPRETATION 171 6.1 INTRODUCTION 171 6.2 THE FACTOR ANALYSIS: RESULTSAND INTERPRETATION 172 6.3 MULTIPLE REGRESSIONANALYSIS: RESULTSAND INTERPRETATION 185 6.3.1 STEPWISEREGRESSION 187 6.3.2 ALL-POSSIBLE-SUBSETS-REGRESSION 190 193 6.4 FURTHER VALIDATION - TESTS USING CLUSTER ANALYSIS 6.5 MAKING THE FINAL CHOICE 194 6.6 SUMMARY AND CONCLUSIONS 195 6.7 REFERENCES 196 CHAPTER 7: DISCUSSION, CONCLUSIONS AND RECOMMENDATIONS 198 FOR FURTHER RESEARCH 7.1 INTRODUCTION 198 7.2 MAIN CONCLUSIONS 199 7.3 ECONOMIC IMPLICATIONS 200 7.3.1 EDUCATION 200 7.3.2 RELIGION