The Market for Knowhow and the Efficient International Transfer of Technology

This paper explores the nature of international technology transfer and the operation of the market for knowhow. It begins by examining the relationship between codification and transfer costs, and then moves on to analyze various imperfections in the market for knowhow. The special properties of knowhow are shown to confound various aspects of the exchange process when arms-length contracting is involved. The internalisation of the exchange process within multinational firms serves to bypass these difficulties, and explains why the multinational firm is of such importance. Several forms of regulation of technology imports and exports are examined. It is discovered that the process is insufficiently well understood to permit the design of effective regulation which, moreover, appear unlikely to eliminate inefficiency. An efficiency focus is maintained throughout since the author feels no qualification to ponificate on complex and confused distributional issues.