Technology transfer in global value chains

Global value chains create opportunities for North-South technology diffusion. This paper studies technology transfer in value chains when contracts are incomplete and input production technologies are imperfectly excludable. It introduces a new taxonomy of value chains based on whether the headquarters firm benefits from imitation of its supplier’s technology. In inclusive value chains, where imitation is beneficial, the headquarters firm promotes technology diffusion. But in exclusive value chains headquarters seek to limit supplier imitation. The paper analyzes how this distinction affects the returns to offshoring, the welfare effects of technical change, and the social efficiency of knowledge sharing.