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Abstract
Trade is considered a major channel of international technology transfer. This chapter investigates its role in transferring technology from industrial to developing countries1. Defined broadly, technology covers production methods, product design and organisational methods. According to Grossman and Helpman (1991), trade can foster technology transfer through two main channels: production and information. Through trade with countries that are technological leaders, developing countries can gain access to intermediate products and capital equipment of higher quality (vertical differentiation) and broader variety (horizontal differentiation). They can also gain access to more open channels of communication about production methods, product design, organisational methods and market conditions. Finally, they can adapt to their use the foreign technologies used in their imported products, often at lower cost than innovation would require.
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