North–South technology transfer in unionised multinationals

Abstract

We study how incentives for North–South technology transfers in multinational enterprises are affected by labour market institutions. If workers are collectively organised, incentives for technology transfers are partly governed by firms' desire to curb trade union power. Higher union bargaining power in the North leads to more technology transfer along two different dimensions – skill upgrading of Southern workers and quality upgrading of products produced in the South – possibly to the extent that the utility of Northern workers decline. Policies to raise the wage levels of Southern workers might spur technology transfer if wages are initially very low, but have a dampening effect on North–South technology transfer once the Southern wage level has surpassed a certain threshold level. These conclusions are reached in a setting where a unionised multinational multiproduct firm produces vertically differentiated products in Northern and Southern subsidiaries.