The model’s implications for host country policies
match those from the recent debate on government
intervention in the trade literature. For instance, Wang
and Blomstrijm (1992) point out that technology
transfer requirements, which typically increase the
affiliates’ technology transfer costs, may have perverse
effects and reduce technology imports, unless
there are strong sanctions for those who do not abide
by the rules. They also hypothesize that host country
governments may increase the transfer of technology
through foreign affiliates by making sure that they are
exposed to local competition and by supporting
domestic firms in their efforts to learn from the foreigners.
Increased competitiveness in local firms
means that the technology gap becomes narrower,
which reduces the demand for the affiliates’ products
and gives them a reason to bring in new technology in
order to restore their advantages. Analogously, government
intervention that reduces the affiliates’ transfer
costs, e.g., education policies that raise the host
countries’ learning capabilities and improve local
labor skills, may encourage higher technology
imports. In other words, policies making use of market
forces may be preferable to direct intervention in the
form of conventional technology transfer and performance
requirements.