Inflows of foreign technology, indigenous productivity, and international competitiveness

Purpose – The purpose of this paper is to investigate the role of cross‐border diffusion of technology as a contributor to national economic performance at both aggregate and sectoral levels. Specifically, it aims to explore: the relationship between inflows of foreign technology and home country knowledge base; and the impact of international technology diffusion on indigenous productivity and international competitiveness. Design/methodology/approach – Values of international trade in manufactured sectors as well as other data sources of economic and scientific performance are used to measure inflows of foreign technology, indigenous knowledge base, or international competitiveness at the aggregate and/or sectoral levels. This paper employs correlation and regression models for data analysis. Sectoral patterns are revealed based on various taxonomies for industrial systems. Findings – At the aggregate level, it is found that there is a positive relationship between a nation's domestic knowledge base and inflows of foreign technology; and technology inflows, as well as home country knowledge base, significantly contribute to a nation's labor productivity (LP) and its international competitiveness. At the sectoral level, it is found that patterns of contribution from technology inflows to international competitiveness differ from industry to industry. There is a general trend of increase in the contributions from international technology inflows to a nation's international competitiveness over time and from lower to higher technology industries. However, for complex system technologies where tacit knowledge prevails, the diffusion of technology could be a significant challenge. Originality/value – Empirical findings of this paper have significant public policy implications. National industrial policies should be sector‐specific to reflect the particular features of each industry. In the meantime, a proper balance must be kept between enhancing home country knowledge base and promoting inflows of foreign technology.