What role does trade play ininternational technology transfer? Do technologiesintroduced by multinational firms diffuse to local firms?What kinds of policies have proved successful in encouragingtechnology absorption from abroad and why? Using thesequestions as motivation, this article surveys the recenttrade literature on international technology transfer,paying particular attention to the role of foreign directinvestment. The literature argues that trade necessarilyencourages growth only if knowledge spillovers areinternational in scope. Empirical evidence on the scope ofknowledge spillovers (national versus international) isambiguous. Several recent empirical plant-level studies havequestioned earlier studies that argued that foreign directinvestment has a positive impact on the productivity oflocal firms. Yet at the aggregate level, evidence supportsthe view that foreign direct investment has a positiveeffect on economic growth in the host country.
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