IPR is irrelevant to tech transfer

The first argument rests squarely on the notion that the provision of technology transfer through investment by MNEs from advanced countries increases the pace by which the knowledge gap is closed, because of the otherwise limited absorptive capacity on the part of the developing country. According to the ‘absorptive capacity’ argument, stronger IPRs stimulate diffusion by providing a secure channel for multinational companies to share their know-how. In the absence of this, countries simply do not have the domestic capacity even to imitate these technologies. IPRs therefore act as essential midwives for technology diffusion. At the same time, it is assumed that with weak IPRs the country’s ability to absorb the technology is so high that the knowledge will be effectively stolen. But, putting aside the seeming contradictory positions on the country’s ability to absorb knowledge - it can only do so when the production occurs within the country - as a theoretical proposition this argument is dubious.

After all, IP will be protected in other countries even if a particular developing country does not have strong protection. This means that the only risk a potential investor faces from investing in a country with weak protections is the use of the knowledge in that country. This could be an important issue in some large countries with potentially lucrative internal markets, but it’s hard to see that as a great risk to potential investors in most developing countries.

Despite this rhetoric, however, there is very little evidence that IPRs are important among the factors that influence the international transfer of technology. Cross-country evidence for this is, at best mixed. (For a comprehensive, if somewhat dated review, see Maskus (2004).) Moreover, the literature on FDI has consistently found that factors such as market size, infrastructure and effective governance (in the form of better business regulation) have been much more important in determining flows of investment and therein, flows of information and know-how.

Moreover, country case studies again show very little evidence of IPRs being important for technology transfer in any real historical context. Certainly, in the period of early industrialisation, laws provided very little protection for global intellectual property (as opposed to domestic IP). By the standards of today’s global rules, every advanced industrialised country would have been classified as an intellectual property violator at the early stages of development when they freely used ideas and technologies generated elsewhere. As Ha Joon Chang (Chang, 2002) notes with regard to the European and American experience, “laws accorded only very inadequate protection of the IPRs of foreign …. For example, many of patent laws were very lax on checking the originality of the invention. More importantly, in most countries, including Britain (before the 1852 reform), the Netherlands, Austria, and France, patenting of imported invention by their nationals was often explicitly allowed.”