The Transfer and Diffusion of New Technologies: A Review of the Economics Literature

Abstract

This report presents a general overview of the economics literature on technological change and focuses particularly on the interface between the public and private sectors in promoting the transfer and diffusion of new technologies. Our ability to transfer and diffuse new technologies is generally recognized as a key to increased productivity in the United States and this country's ability to compete internationally. A great deal of research has been done on technology transfer and diffusion by various disciplines and from numerous perspectives. Unfortunately, the policy implications of those different works are not always consistent. Further, the different disciplines have difficulty in communicating even when addressing the same issues and drawing the same general conclusions. The primary objective of this report is to lessen the chasm among the disciplines with respect to technology transfer and diffusion by summarizing the perspectives presented in the economics literature. The document is intended primarily for an interdisciplinary audience. The discussion begins with an overview of the economics literature on technological change and focuses on what economists commonly refer to as the Schumpeter trilogy--i.e., invention, innovation, and diffusion. Economists typically view technological change to occur in these three distinct steps and have formulated conceptual frameworks that suggest how and why each step in the process of technological change takes place. After defining these three steps, the report presents brief overviews of the seminal conceptual and empirical works in the three areas. Of key concern is an overview of the types of questions historically posed by economists and the degree to which economists have reached a consensus on these questions. The report then abstracts from this larger picture of technological change and focuses specifically on the interface between the public and private sectors. Within this second thrust, the report poses and attempts to answer two general questions: (1) Why have economists argued for government involvement to promote technological change? This issue leads to a brief discussion of market failures that inhibit the invention, innovation, and diffusion of new technologies. (2) Where and how can the public sector interface with the private sector to correct the market failures or, alternatively, take actions to counteract the effects of market failures? The role of the federal government in the innovative process remains the subject of significant debate by economists. Although most economists would agree that some role must be played by the public sector, our current conceptual and empirical knowledge is lacking. Little consensus has thus been reached about how the government should respond to the problem in general, and even less consensus exists about how particular technologies in particular markets should be dealt with. The report suggests that the public sector can encourage the process of innovation by either directly participating in the process of technical change or by indirectly stimulating the private sector's innovative activities. Although both methods have been shown to promote technical change, economists have not yet developed a generally agreed upon formula that dictates what method is most appropriate in any given case. It is likely that the arguments by economists with respect to the government's role in technological change will become more definitive as more detailed conceptual and empirical studies are completed. It is unlikely, however, due to the number of dynamic factors that are known to influence the innovative process, that the economics profession will develop a formula or set of formulae for promoting technical change or the involvement of the public sector in that change. A movement toward interdisciplinary research, which is currently underway, is the most promising avenue for studying the role of public policy in promoting technical change.