The document discusses the transfer of technology (TT) from developed to developing countries and its potential effects. It makes three key points: 1) TT is most likely to result in "immiserizing growth" for least developed countries that produce goods not substitutable with developed countries' goods and have very inefficient domestic technology. However, upgrading specialization and comparative advantages can mitigate negative trade impacts. 2) For developing countries to benefit from globalization and foreign technology, they must improve infrastructure/skills to change specialization patterns. If costs of creating new industries are very high, immiserizing growth cannot be ruled out. 3) Countries like China have climbed the ladder of comparative advantages by reallocating labor

1. Transfer of Technology
Conclusion
The study of the model with n goods confirms that immiserizing growth linked to the TT
from a developed country is a phenomenon which concerns the least developed countries.
These countries produce manufacturing goods which are not substitutes with those which
are produced by developed countries. In addition, they have very inefficient
technologyin the industry where the developedcountries have a comparative
advantage. This factor is fundamental, because we have shown that any progress in the
ladder of comparative advantages cushions the adverse evolution of the terms of trade for
these countries. These results have two important consequences
First, for developing countries, it is crucial to upgrade their specializationpattern.
Such an evolution is the condition to take advantage of the globalization of trade and of
the technology which may be transferred by developed countries. However, the poor
quality of infrastructure, or the low qualification of the manpower, may be
obstacles to this change of specialization. If the economic and social costs to create new
emerging activities, and move internal resources to these activities, are very high, the
spectre of immiserizing growth cannot be ruled out.
Second, the “emerging” countries (say China, India), which could be regarded decades
ago as underdeveloped, have gradually climbed up the ladder of comparative advantages.
To do so, they have reallocated their manpower, from their traditional industries where
they had their highest comparative advantages, to produce more and more commodities
of the industries of the middle of the ladder. The TT into their “traditional” industries
(textile, clothing) from developed countries was in the interest of the latter (because they
benefited from the evolution of the terms of trade), and also, if we consider our model, of
the former. An important general result of this paper is that, even if such transfers are
concentrated in the traditional industries of these countries, they save (human) resources
which can be employed in new emerging industries (say consumer electronics), and by
this way, help them to change their specialization pattern, thus protecting them against
immiserizing growth.

2. Introduction
In a seminal paper, Bhagwati [1958] using a two-good, two-country HOS framework
showed that economic expansion (due to an increase in the volume of production factors,
or to a technological shock) “may harm the growing country itself”. This paper has given
birth to a huge literature on the effects of income transfers (Bhagwati, Brecher, Hatta
[1983]; Majundar and Mitra [1985]; Yano [1983]) and technological progress (Hatta
[1984]; Mantel [1984]) on developing countries’ welfare. Hatta [1984] has demonstrated
the analytical conditions for non-immiserizing growth in an n-commodity, two-country
HOS framework, following the progress of the developing country’s technology. The
most important conditions are: all commodity pairs are substitutes in consumption
in the developing country, there are no complements in commodity pairs in
production of the developing country, and in the developed country the import demand
functions satisfy gross substitutability! [1]When the price of any good j increases, the
demand...
The effect of the relaxation of some of these restrictive conditions on the developing
countries’ welfare has become a wide field of research. Most of these contributions use
the Ricardian trade model that takes into account the international differences in
technology, rather than the Heckscher-Ohlin trade model. Using a Ricardian setting,
Samuelson [2004] considers that, under free trade, technological improvement in the
industry where the developing country has a comparative advantage may harm its
welfare. He states that: “Self-immiseration is a well-known phenomenon in the economic
literature, and it does crop up in the debate over globalization”. Samuelson [2004, p.
140].
Moreover, in a world where technologyfreely flows betweennations, economic
expansion canoriginate from developedcountries which transfer their
superior technologyto developing countries (Cheng, Qiu, and Tan [2005]; Jones
and Ruffin [2008]; Ruffin and Jones [2007]).Beladi, Jones and Marjit [1997] in a two-
country Ricardian model consider that a developed country transfers the technology of an
industry where it has a comparative disadvantage into the developing country’s exporting

3. industry. Using a diagramatic analysis, they show that immiserizing growth may hurt the
developing country’s welfare. Ruffin and Jones [2007, p. 212] also study geometrically
this pattern of technology transfer, and conclude that: “Sufficiently low elasticity, coupled
with a large value for the developing country import propensity, could result in a drop of
its real income”. The case, where a developed country transfers the technology of the
industry where it has a comparative advantage into a less developed country, has been
formalized and analyzed in depth by Jones and Ruffin [2008] and Ruffin and Jones
[2007]. The two authors disclose a “technology transfer paradox”. They show, in a two-
country Ricardian model, that even in the situation where the specialization of the
developed country is reversed, its welfare may increase following the transfer of
technology (TT) to the developing country.
In the model we build hereafter, following Beladi, Jones and Marjit [1997], Cheng, Qiu,
and Tan [2005], Jones and Ruffin [2008], Ruffin and Jones [2007], technology is the
know-how, blueprints or management skills which can be transferred by developed
countries’ multinational firms (MNFs) to developing countries. This corresponds to the
view that capital accumulation is no more the main factor of economic development,
but “that in recent decades more attention is paid by economists to factors such as
education and technological change” [Weil, 2009]. This statement is confirmed by
Cheng, Qiu, and Tan [2005] when they study the MNFs behavior: “Capital movement,
from the home countries of MNFs to the host countries, seems to have become the least
important ingredient of FDI. In contrast, technology and managerial talent have become
the key ingredient” Cheng, Qiu, Tan [2005, p. 478].. From an empirical point of view, it
is noteworthy that The World Investment Report(UNCTAD), each year, contains a special
sectionon new “non-equity forms” of transnational corporate activity. These include
subcontracting, management contract, franchising, licensing and product-sharing Data on
these forms of transnational corporate activities....
Moreover, in this contribution, we consider a two-country, two-good model (extended in
the last sectionto n goods) in which technology is transferred for free from the industry
where the developped country has a comparative disadvantage to the developing
country’s exporting industry (following Beladi, Jones and Marjit [1997]; Cheng, Qiu, and
Tan [2005]; Ruffin and Jones [2007], this last paper even envisages that technology may

4. be stolenby the developing country). There are two basic ideas behind this hypothesis of
free transfer of technology.
First, in our model, TT does not concern cutting edge technology, but technology which
is standard in the developed country’s comparatively disadvantaged industry. This
technology can be regarded as a public good, since we hypothesize that it has been used
extensively, and for a long time, by the developed country’s FMNs. At the opposite, for
FMNs, high technology is a fundamental factor of their comparative advantage in their
competition with the developing country’s firms. There are strong arguments why these
FMNs do not transfer their advanced technology. They fear not to be able to protect this
technology from imitation, or even robbery in the foreign countries. Japanese economists
(Kojima [1978, 2000]; Ozawa [1992, 2005, 2009] have formalized a so-called model of
“flying geese” in which the leading country transfers its standard technology, in the
industries where it has a comparative disadvantage, to the countries which have a
comparative advantage in the same industries. The leader keeps its supremacy in high
technology industries.
Second, for non equity forms of corporate activities, it is the interest of the developed
country’s MNFS to enter into technological cooperation with foreign firms (Hoekman,
Maskus and Saggi [2005]; Pack and Saggi [2001]; Saggi [2002]) and to support the
efforts of their suppliers to increase the efficiency of their production process. By this
way, firms which transfer their technology benefit from the cost reduction of the goods
they import. This reduction may result in the fall of the terms of trade of the developing
country, following the TT. There is much descriptive and empirical research which puts
forward this deterioration of the terms of trade Sarkar [2001], Ram [2004], Bhattacharya
&Raychaudhuri.... Sarkar [2004, p. 167-168]has estimated a log-linear trend equation
which shows the terms of trade deterioration for a wide range of developing and
emerging countries, in Asia and south America, in the 1980s and 1990s. The same
evolution is observed for the 2000s (World Bank [2009], p. 335). Li, Huang and Li
[2007] confirm that, in China, the terms of trade of commodities dropped by 17%
between 1995 and 2004. In the 1990s, processing trade which resulted from different sub-
contracting and licensing agreements between Western MNFs and Chinese firms were
found in clothing, shoes, toys, and furniture industries. At the beginning of the 2000s,

5. consumer electronics became dominant, but this shift has not reversed the deterioration of
this country’s terms of trade.
However, the deterioration of the terms of trade does not necessarily entail immiserizing
growth (Bhattacharya &Raychaudhuri [2004]). Sawada [2009] has investigated the
empirical reality of this negative evolution. He evaluates a representative consumer’s
welfare, based on revealed preference theory, for a wide range of developed as well as
developing countries. He singles out mostly sub-Saharan, but also Central and South
American developing countries which during the period under survey (1975-1985)
experienced immiserizing growth, that is the growth of their GDP per capita coupled with
a decline of their welfare. This study also shows that many developing countries
(including most Asian countries) increased both their welfare and their GDP per capita
during this period. To our opinion, these diverging evolutions justify that we analyse in
depth the factors which determine the positive or, at the opposite, the negative impact of
international technology and trade flows on developing countries’ welfare.