Technological balance of payments and international competitiveness: The case of the Federal Republic of Germany

Abstract

The so-called technological balance of payments has been widely and controversially discussed as an indicator of a country's performance in innovative activity and its role in the international transfer of technology. The main virtue of data on technological payments is usually ascribed to the fact that they are related to the output of innovative activity rather than to the input. And output indicators of innovative activity are in great demand in research on technical change, but in notoriously short supply. This paper examines the explanatory power of the technological balance of payments in the case of the West German economy. The drawbacks of West German data on the patents and licences account are discussed in detail. Then the patterns by industry and by country of the technological balance of payments are analyzed. Regarded across industries, a positive relationship is found between receipts — but not for payments — on patents and licences, on the one hand, and domestic R&D intensity, on the other. Technological payments seem to be closely related to foreign direct investment. For example, the bulk of payments to abroad is done by affiliates of foreign companies, to which only a very small fraction of receipts accrue. Taken together, there is no simple relationship between the technological balance of payments position and the innovativeness of countries. It would, therefore, be misleading to interprete the overall large deficit of the West German patents and licences account as an indicator of technological weakness. Furthermore, changes in the balance, particularly in recent years, suggest an increasing improvement.