LARGE IS BEAUTIFUL - THE WELFARE EFFECT OF TECHNOLOGY-TRANSFER RECONSIDERED

This paper demonstrates that a technology transfer via foreign-owned firms always reduces the host country's national income if the new technology is localized, in the Atkinson-Stiglitz sense, at a capital-labor ratio higher than prevails locally. Although developing countries can mitigate this negative impact of technology transfer by restricting the activities of foreign firms, we argue that complete capital market liberalization yields even higher national income.