Foreign Investment and the Optimum Terms of Technology Transfer.

This paper examines the optimum technology-pricing policy of a country that exports the superior technology to another country in which it has foreign investment. It demonstrates that, contrary to popular belief, full exploitation of technology market need not be the optimum strategy even if it were feasible. Because the technology fee may be negatively correlated with production in the recipient sector as well as returns from foreign investment, the optimum technology fee may well be zero or even negative.