chapter  4
17 Pages

Induced Technical Change and the Transfer Mechanism 1

WithMichael B. Connolly

This chapter examines three aspects of technical change in an international setting. First, technical advances are frequently produced through research and development. Second, technical advances are often, if by no means always, sold or traded through a patent system designed to make appropriable the external gains inherent in their development. Third, and perhaps most important, new techniques can, in many instances, be applied to productive processes throughout the world, independently of their place of origin or discovery. The chapter explores the conditions for the optimum production of technical change in a framework in which new techniques can be exported abroad in exchange for payments. Payments for the use of new techniques are linked directly to the classical transfer mechanism. Payments for the import of new techniques take the form of a transfer of goods, and can thus be incorporated into the classical two-good trade model without having to add a third commodity.