Academic journal article Journal of Economic Development

'Davids' Are Not Small 'Goliaths': R&d and Technology Licensing in Brazilian Production

Academic journal article Journal of Economic Development

'Davids' Are Not Small 'Goliaths': R&d and Technology Licensing in Brazilian Production

Article excerpt

(ProQuest: ... denotes formulae omitted.)


The primary question that this paper addresses is whether R&D and technology licensing are substitutes or complements in production, with the related question of whether licensing in one period encourages subsequent technological dependence (more licensing in the future, i.e. inter-temporal complementarity between R&D and licensing) or independence (less future licensing or even R&D instead, i.e., inter-temporal substitutability). Since the answer to that question clearly depends upon the size of the firm, this analysis uses a firm-level dataset to clarify and extend the existing literature.

The question of R&D/licensing complementarity is critical for all firms deciding on a method for technology acquisition, and is commonly referred to as the "insourcing versus outsourcing" debate and is an important public policy issue for less developed nations in particular, who express concern about technological dependence and capital outflows. Since 1990, traditionally staunch supporters of controlled technology imports like Brazil and India have reversed course. After decades of tight license restrictions designed to foster domestic R&D, a combination of international pressure for open markets and growing dissatisfaction with low rates of technological change (Estache, 1990) has led to a flood of legislative changes easing inflows of foreign technology.

Beginning in 1962, any contract in Brazil concerning a piece of intellectual property, whether of foreign or domestic origin, was required to have a government license (Johnson, 2002). Concerns in the 1970's about excessive payments abroad led to stricter legislation about technology licensing, including laws dictating remuneration in accordance with instructions by the Central Bank and Instituto Nacional da Propriedade Industrial (INPI). By 1975, a maze of contract guidelines existed, including rules for ceilings on both upfront and royalty payments. Contracts could not require the purchase of raw materials or components from the licensor, could not limit or hinder the research and technological development policy or activities of the licensee, and passed the rights to all improvements introduced by the user to the licensee. All of these requirements were aimed at fostering technological independence and domestic R&D capability (or to discourage cheating on the dictated payment ceilings).

Starting in 1983, the policy stance changed, and the Brazilian government began to see for itself a role as facilitator of technology flows, with INPI promoting domestic transfers of technology, and other legislation promoting domestic innovation and R&D. By 1988, revitalized movements were also focused on the liberalization of international technology flows, with initial efforts aimed mainly at streamlining the application process required for a contract's approval. By 1990, tax concessions were granted for payments for foreign technology, and forty PDTI's (Programas de Desenvolvimento Tecnologico Industrial, agencies designed to foster technology flows between industries and between regions) had been instituted. In 1993, legislation restricted INPI to the formal examination of contracts with no power to refuse licenses, stating specifically that the recording of contracts must not constitute an obstacle to the access of the national industry to the technology and R&D sources existing in Brazil and abroad. In fact, INPI has a new mandate to render support services to Brazilian firms interested in the acquisition of new technology, foreign or domestic.

It is obviously important to evaluate the potential reactions of domestic R&D to these policy changes, and empirical evidence on the issue indicates that R&D and technology licensing can be used as complements. Industry-level studies for India (Katrak 1985; Siddharthan, 1988; and Deolalikar and Evenson, 1989 for example), Canada (Mohnen and Lepine, 1991), and foreign branches of American firms (Blomstrom et al. …

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